Finance
How are exchange rates set?
Exchange rates are mostly set by supply and demand in global currency markets. When people want more of a currency — to trade, invest, or travel — its value rises; when demand falls, it drops. Interest rates and economic health drive those shifts.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how exchange rates works.
Step by step
- 1Most rates float, set by supply and demand for currencies.
- 2High demand for a currency pushes its value up.
- 3Interest rates, inflation, and trade influence demand.
- 4Some countries instead peg their currency to another.
Frequently asked questions
- How are exchange rates determined?
- Mainly by supply and demand in global markets, shaped by interest rates, inflation, and trade.
- What is a floating vs fixed exchange rate?
- A floating rate moves freely with the market; a fixed rate is pegged by a government to another currency.
- Why do exchange rates change so often?
- Currency demand shifts constantly with news, trade flows, interest rates, and investor sentiment.