CA Foundation · Business Economics · International Trade
Under a flexible (floating) exchange rate system, the exchange rate of the rupee against the US dollar is determined mainly by:
Under a flexible exchange rate system, the rate is determined by the demand for and supply of foreign exchange in the market. It is not fixed by the government or the IMF, and it changes continuously as demand and supply conditions change.
- AThe decision of the Finance Ministry announced every year in the Budget
- BThe demand for and supply of foreign exchange in the foreign exchange marketCorrect
- CThe gold reserves held by the Reserve Bank of India alone
- DA fixed parity set by the International Monetary Fund
Explanation
In a floating system the rate is set by market forces, that is, the demand for and supply of foreign currency. Official fixing by the government or IMF belongs to a fixed rate system, so the other options are wrong.
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