Question

Which among the following statements hints at the mechanism of flexible exchange rate?

• A. Intervention of the central bank
• B. Demand and supply force of the market
• C. Decision of the government
• D. Intervention of the government with the help of the central bank

Answer 1

The correct option is B Demand and supply force of the market

A flexible exchange rate is a regime where a nation's currency is set by the demand and supply force of the market. In case of higher demand, the value of the domestic currency appreciates. On the other hand, the value of the currency is determined by the government in case of fixed exchange rate.