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Fixed and flexible exchange rate

What is the primary difference between a fixed exchange rate and a flexible exchange rate?

Fixed exchange rates are set by the government, while flexible exchange rates are determined by market forces

Fixed exchange rates fluctuate daily, while flexible exchange rates remain constant

Fixed exchange rates are used in developed countries only, while flexible exchange rates are used in developing countries

Fixed exchange rates are more volatile than flexible exchange rates

Which exchange rate system does India currently follow?

India follows a managed float exchange rate system

India follows a fixed exchange rate system

India follows a flexible exchange rate system

India follows a pegged exchange rate system

What is the impact of a fixed exchange rate on India's economy?

Stability in international trade

Reduced speculation in the foreign exchange market

Loss of monetary policy independence

Increased risk of currency crises

Define the term 'devaluation' in the context of exchange rates in India.

How does a flexible exchange rate benefit India's economy?

Flexible exchange rates help absorb external shocks and adjust to changing economic conditions

Flexible exchange rates lead to currency instability and hinder international trade

Flexible exchange rates limit the government's ability to control inflation

Flexible exchange rates increase the risk of speculative attacks on the currency

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