Question:
Under the flexible exchange rate system, the exchange rate is determined:
Under the flexible exchange rate system, the exchange rate is determined:
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In a flexible system, the central bank only intervenes occasionally. Prices rise or fall based on currency demand.
Updated On: Aug 11, 2025
- By the Central Bank
- By the World Trade Organization
- Predominantly by market mechanism
- As a weighted index of a group of currencies
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The Correct Option is C
Solution and Explanation
A flexible exchange rate system allows currency values to fluctuate.
This fluctuation is based on demand and supply in the foreign exchange market.
No central authority fixes the rate — unlike a fixed rate system.
Hence, the market mechanism (forces of demand and supply) determine the exchange rate.
Option (C) is the most accurate.
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