Question

The exchange rate of a currency in its forex market depends on:
1. its current account deficit and the fiscal deficit
2. the currency regime economy follows for exchange determination
3. inflation, printing of fresh currencies, levels of forex earnings Code:

• A. 1 and 2
• B. 2 and 3
• C. 1 and 3
• D. 1, 2 and 3

Answer 1

The correct option is D 1, 2 and 3

Exchange rate of a currency depends on so many variables as given in the question. If the economy follows the 'floating currency regime' for the exchange rate determination, the exchange rate is directly linked to all those factors which affect the availability of domestic and foreign currencies in the economy-higher the supply of foreign currency, higher the value domestic currency will have and vice versa.