Show with the help of a diagram how exchange rate is determined under flexible exchange rate system.

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Solution

The system of exchange rate in which rate of exchange is determined by forces of demand and supply of foreign exchange market is called Flexible Exchange Rate System. Here, value of currency is allowed to fluctuate or adjust freely according to change in demand and supply of foreign exchange.

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Similar questions

(a) What is foreign exchange rate?

(b) How it is determined under fixed and flexible exchange rate system?

How is the exchange rate determined under a flexible exchange rate regime?

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