Q:

Who sets the currency exchange rate?

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Quick Answer

The party responsible for setting the currency exchange rate can vary by country; however, some countries have a government agency responsible for setting the exchange rate. The currency exchange rate is determined by supply and demand, and there are many factors that can affect supply and demand.

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Full Answer

Examples of factors that can affect supply and demand include changes in interest rates, the current unemployment rate of a country, inflation and the gross domestic product. An exchange rate can be set as either pegged or floating. Pegged exchange rates change in tandem with a specific currency, while floating exchange rates are based on a number of factors and are constantly changing.

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