What is the main feature of a flexible exchange rate system?

Determined by forces of market supply

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Determined by forces of market demand

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Both A and B

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None of the above

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Solution

The correct option is B Both A and B
In a flexible rate system, the price of the domestic currency in international markets is purely determined by the market forces of supply and demand.
It is allowed to appreciate and depreciate as per the market conditions, without intervention by the central bank.
The Federal Reserve does not intervene in the forex market for the US dollar and it is classified as a freely floating currency.

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