eli5: How are currency exchange rates set?

Question

eli5: How are currency exchange rates set?

In: Economics

Answer 1

Its supply and demand in floating exchange rates. The supply comes from the government, foreign governments, imports and speculators and demand comes from the same forces except exports lead to currency demand.

In a peggged system its the same but the government interviens if a currency falls or rises beyoned a certain point.

In a fixed system the government controls the price of a currency