Question

Huge international reserves are required to be maintained by the government in fixed and flexible exchange rate system.

• A. True
• B. False

Answer 1

The correct option is B False

Fixed exchange rate system is always supported with huge reserves of gold because foreign currencies are convertible to gold.

But flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' as it is determined by the free play of supply and demand forces in the international money market.