Under flexible exchange rate system, the exchange rate is determined:
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Under flexible exchange rate system, the exchange rate is determined:
✓ Correct answer: a) Predominantly by market mechanism
ExplanationKey Points- Flexible exchange rate system is a type of exchange system where the exchange rate is predominantly on demand and supply of money in the market.Explanation- In a flexible exchange rate system, as per the changes in demand and supply of foreign exchange, the currency is allowed to fluctuate freely.There is no involvement of the central bank in this system and neither is there any need of maintaining foreign reserves.Appreciation and Depreciation of currency take place in this type of exchange system.Hence the correct option is Option A i.e. predominantly by market mechanism.
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