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.

Detailed explanation-2: -In a free-floating exchange rate system, exchange rates are determined by demand and supply.

Detailed explanation-3: -Flexible exchange rate system is the exchange system where the exchange rate is dependent upon the supply and demand of money in the market. In a flexible exchange rate system, the value of the currency is allowed to fluctuate freely as per the changes in the demand and supply of the foreign exchange.

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: -As the price of a foreign currency increases, the quantity supplied of that currency increases. Exchange rates are determined just like other prices: by the interaction of supply and demand. At the equilibrium exchange rate, the supply and demand for a currency are equal.