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Questions
How is flexible rate of exchange determined?
Explain how flexible rate of exchange is determined.
Explain
Very Short Answer
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Solution 1
The flexible exchange rate is set based on the demand and supply of the respective currencies in the foreign exchange market.
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Solution 2
A flexible exchange rate is determined by the demand and supply of different currencies in the foreign exchange market.
- If demand for a currency increases, its value rises.
- If supply increases or demand falls, its value drops.
There is no government control, and the rate changes freely based on trade, investments, inflation, interest rates, and overall economic conditions.
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