Question : In a floating exchange rate system, the exchange rate is determined by market forces, and fluctuations in the rate are caused by changes in ________.
Option 1: government policies
Option 2: inflation rates
Option 3: interest rates
Option 4: supply and demand
Answer (1)
21st Jan, 2024
Correct Answer: supply and demand
Solution : The correct answer is (d) supply and demand
In a floating exchange rate system, the exchange rate is primarily determined by market forces, specifically the forces of supply and demand in the foreign exchange market. Fluctuations in the exchange rate occur due to changes in supply and demand for currencies.
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