Who sets the exchange rate?

[youtube https://www.youtube.com/watch?v=G9Pd6LQGH_s&w=560&h=315]

The exchange rate is the amount of onecurrency you can buy with another.

In some countries, the central banksets the exchange rate.

The Bank of England is the UK's central bank; but it does not set the exchange rate for the pound.

The exchange rate for the pound is decided by supply and demand.

Just as the price of a train journey is higher at peak times when more people need to travel, the pound gets stronger when people want to buy more pounds.

Investors all around the world trade huge sums of foreign currency every day.

It's these trades that determine the exchange rates for the pound.

These rates are the basis for the rates you get in banks and foreign exchanges when you change money from one currency to another.

Source: Youtube

Who sets the exchange rate?

The exchange rate for the pound is determined by supply and demand – it is not set by the Bank of England. To find out more about the exchange rate and how it affects you, visit our guide here: http://edu.bankofengland.co.uk/knowledgebank/does-the-bank-of-england-set-the-exchange-rate/