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Question
“Considering the depreciation of Indian Currency (₹) in the international market, the Reserve Bank of India (RBI) has decided to purchase Indian currency (₹) in the open market.”
This represents ______ exchange rate system.
Options
fixed
flexible
managed floating
manipulated
Solution
“Considering the depreciation of Indian Currency (₹) in the international market, the Reserve Bank of India (RBI) has decided to purchase Indian currency (₹) in the open market.”
This represents managed floating exchange rate system.
Explanation:
Managed floating occurs when the RBI occasionally intervenes in the open market by purchasing and selling Indian currency in order to influence the foreign exchange rate. A managed floating exchange rate system's principal purpose is to reconcile the benefits of exchange rate flexibility with the necessity for exchange rate stability.
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Answer the following question.
Explain the distinction between the flexible exchange rate and the managed floating exchange rate.
Two friends Mira and Sindhu were discussing the exchange rate systems. ‘Under this system, the exchange rates are determined by the market forces of demand and supply. However, deliberate efforts are made by the competent authority to keep the exchange rates within a specific range’. The above-mentioned statement was given by Sindhu, identify the type of exchange rate system was she talking about?
