Question : Assertion: In case of Floating Exchange rate system currency price of a nation is set by the forex market based on supply and demand relative to other currencies.
Reason: Government intervenes in the foreign exchange market under Floating Exchange rate system to restrict the fluctuations in the exchange rate within certain limits.
Option 1: Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Correct Answer: Assertion is true but Reason is false
Solution : The correct answer is c) The assertion is true, but the reason is false.
In a floating exchange rate system, the currency price of a nation is indeed set by the foreign exchange market based on the supply and demand relative to other currencies. The exchange rate is determined by market forces such as trade flows, capital flows, and investor sentiment.
However, the reason provided is incorrect. Under a floating exchange rate system, the government generally does not intervene in the foreign exchange market to restrict fluctuations in the exchange rate within certain limits. The exchange rate is allowed to fluctuate freely based on market forces without government intervention.
Question : Assertion: Managed floating rate system is a hybrid of foreign exchange rate and a flexible exchange rate system.
Reason: Central Bank maintains reserves of foreign exchange under Managed Floating rate system to ensure that the exchange rate stays within the targeted value.
Question : Identify which of the following statements is true?
Option 1: The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves
Option 2: In the Managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
Option 3: In the Managed floating exchange system, the central bank intervenes to moderate exchange rate fluctuations
Option 4: In the Fixed exchange rate system, market forces fix the exchange rate.
Question : Assertion: A financial market facilitates the exchange of financial assets.
Reason: Financial markets involve the trading of goods and services.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Assertion is false, but the reason is true.
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