Question : Which of the following exchange rate systems allows the exchange rate to be determined solely by market forces of supply and demand?
Option 1: Fixed exchange rate
Option 2: Floating exchange rate
Option 3: Managed float exchange rate
Option 4: Pegged exchange rate
Answer (1)
20th Jan, 2024
Correct Answer:
Floating exchange rate
Solution : The correct answer is b) Floating exchange rate
In a floating exchange rate system, the value of a currency is determined by the market forces of supply and demand without any government or central bank intervention. The exchange rate fluctuates freely based on factors such as economic conditions, interest rates, inflation, and market expectations.
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