22 Views

Question : In a floating exchange rate system, the exchange rate is primarily determined by:

Option 1: Market forces of supply and demand.
  

Option 2: Government interventions.
 

Option 3: Balance of trade.

  

Option 4: Interest rate differentials.


Team Careers360 6th Jan, 2024
Answer (1)
user-img
Team Careers360 20th Jan, 2024

Correct Answer: Market forces of supply and demand.
  


Solution : The correct answer is a) Market forces of supply and demand.

Under a floating exchange rate regime, the value of a currency is determined by the interaction of market participants, including individuals, businesses, financial institutions, and investors. The exchange rate adjusts based on the relative demand for and supply of a currency in the foreign exchange market.

Market forces such as economic fundamentals, interest rate differentials, inflation rates, capital flows, trade balances, and investor sentiment all contribute to the fluctuation of exchange rates in a floating exchange rate system.

While governments may occasionally intervene in the foreign exchange market to influence their currency's value, in a floating exchange rate system, their interventions are typically limited and aimed at smoothing extreme volatility rather than actively setting or fixing exchange rates.

Related Questions

UEI Global, Hotel Management ...
Apply
Training & Placement Guarantee | Top Recruiters: The Oberoi, Taj, Lee Meridien, Hyatt and many more
VIT Bhopal University | M.Tec...
Apply
M.Tech admissions open @ VIT Bhopal University | Highest CTC 52 LPA | Apply now
Amity University | M.Tech Adm...
Apply
Ranked amongst top 3% universities globally (QS Rankings).
Amity University Noida MBA Ad...
Apply
Amongst top 3% universities globally (QS Rankings)
Graphic Era (Deemed to be Uni...
Apply
NAAC A+ Grade | Among top 100 universities of India (NIRF 2024) | 40 crore+ scholarships distributed
XAT- Xavier Aptitude Test 2026
Apply
75+ years of legacy | #1 Entrance Exam | Score accepted by 250+ BSchools | Apply now
View All Application Forms

Download the Careers360 App on your Android phone

Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile

150M+ Students
30,000+ Colleges
500+ Exams
1500+ E-books