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Question
Point out the merit of the flexible exchange rate.
Options
Eliminates undervaluation of currencies only
Eliminates overvaluation of currencies only
Eliminates overvaluation or undervaluation of currencies
None of the above
MCQ
Solution
Eliminates overvaluation or undervaluation of currencies
Explanation:
The flexible exchange rate is determined by the forces of supply and demand, i.e. where demand equals supply, eliminating currency undervaluation or overvaluation.
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Foreign Exchange Market - Determination of the Exchange Rate
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