Question

The government fixes the exchange rate in case of fixed exchange rate regime.

Options

• The statement is true.

• The statement is false as the government fixes the exchange rate in case of flexible exchange rate regime. 

• The statement is false as the government fixes the exchange rate in case of managed exchange rate.

• None of the above.

Answer 1

The statement is true.

Explanation:

The fixed exchange rate system is one in which the exchange rate is officially published and fixed by the government. The fixed exchange rate is not affected by market forces such as demand and supply. During the period 1880-1914, such a rate of exchange was associated with the Gold Standard System.