ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Flexible exchange rate system
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Gold Standard System of exchange rate
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Bretton Woods system of exchange rate
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None of these
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Detailed explanation-1: -The Gold Standard System was the most rigid system of exchange rates.
Detailed explanation-2: -A fixed exchange rate is a regime applied by a government or central bank that ties the country’s official currency exchange rate to another country’s currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency’s value within a narrow band.
Detailed explanation-3: -Fixed exchange-rates are not permitted to fluctuate freely or respond to daily changes in demand and supply. The government fixes the exchange value of the currency. For example, the European Central Bank (ECB) may fix its exchange rate at €1 = $1 (assuming that the euro follows the fixed exchange-rate).
Detailed explanation-4: -Hence, solid is the most rigid physical state of matter.
Detailed explanation-5: -Detailed Solution. The correct answer is Flexible exchange rate. Flexible exchange rate system is a method of regulating exchange rates based on the market mechanism that is demand and supply.