The forex, also known as the forex market, is a decentralized global market where currencies are bought and sold. Exchange rates are determined by supply and demand, with traders and investors buying and selling currencies based on a variety of factors such as interest rates, economic growth, and political stability. Additionally, the laws of supply and demand also play a role in determining exchange rates, with a higher demand for a currency leading to an increase in its value, and a lower demand leading to a decrease in its value. Central banks may also intervene in the market to try to influence exchange rates, through methods such as buying or selling their own currency in the market.

Exchange rates in forex are determined primarily by supply and demand in the currency market. Several key factors influence this:

1. Interest Rates: Central banks adjust interest rates, attracting foreign capital to higher-yielding currencies.

2. Economic Indicators: Strong economic performance, such as GDP growth or low unemployment, can raise demand for a currency.

3. Inflation Rates: Lower inflation often leads to stronger currencies, as purchasing power is preserved.

4. Political Stability: Countries with stable governments and policies tend to attract foreign investment, boosting their currency value.

5. Market Sentiment: Traders’ perceptions and speculations about future currency movements also affect demand.

Supply and demand imbalances due to these factors cause fluctuations in currency values, determining the exchange rates.