ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Under flexible exchange rate regime, the rate of exchange is determined by the forces of demand and supply. In other words, the equilibrium rate of exchange occurs where demand and supply are equal to each other.

Detailed explanation-2: -In floating exchange rate system, exchange rate are determined by market demand and supply forces for the currencies.

Detailed explanation-3: -A floating rate is determined by the open market through supply and demand on global currency markets. Therefore, if the demand for the currency is high, the value will increase. If demand is low, this will drive that currency price lower.

Detailed explanation-4: -A floating exchange rate is one that is determined by supply and demand on the open market. A floating exchange rate doesn’t mean countries don’t try to intervene and manipulate their currency’s price, since governments and central banks regularly attempt to keep their currency price favorable for international trade.

Detailed explanation-5: -Flexible exchange rate system-Here, the exchange rate is determined by the forces of demand and supply of different currencies in the foreign exchange market.