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Point out the merit of the flexible exchange rate. -

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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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