Who sets the currency exchange rate?

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.

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.