Question

Short Answer Type Questions:
What is meant by fixed exchange rate system and flexible exchange rate system?

Answer 1

Fixed rate of exchange refers to the rate of exchange as fixed by the government. Historically, it has two variants; Gold standard system of exchange rate and Bretton woods system of exchange rate.

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.