Question

The currency exchange rate system in which the exchange rate is determined by demand and supply of currency in the foreign exchange market is called 
1. Fixed exchange rate
2. Managed exchange rate 
3. Flexible exchange rate 
4. Dual Exchange rate

Answer 1

Correct Answer - Option 3 : Flexible exchange rate 

The correct answer is Flexible exchange rate.

• Flexible exchange rate system is a method of regulating exchange rates based on the market mechanism that is demand and supply.
• In the flexible exchange rate system, a domestic currency is left free to float against a number of foreign currencies in the foreign exchange market and determine its own value.

Additional Information

• Fixed exchange rate system: In this, the exchange rate of the currency is fixed in front of a basket of import world currencies like the US Dollar, Japanese Yen, Euro etc.
• Managed Exchange Rate system: It is the hybrid or mixture of fixed and flexible exchange rate system.
• Dual Exchange Rate System: It is evolved by India. There is two exchange rate for Rupee one is official and another is market rate.