Question

INSTRUCTIONS

1. YOUR GRADE DEPENDS ON YOUR CONVICTION, CORRECTNESS, ELABORATION AND ELUCIDATION OF YOUR ANSWERS.
2. EACH COUNTS 17 POINTS.
3. YOU SHOULD WRITE ABOUT ONE PAGE SINGLE SPACED PER QUESTION

Evaluate flexible and fixed exchange rates.

Answer 1

Answer:

FIXED AND FLEXIBLE EXCHANGE RATES

1. Meaning

The rate which is controlled as well as maintained by Central government is known as fixed exchange rate

The rate which is not controlled by central government and is determined with the help of market forces of demand and supply is called flexibke exchange rate.

2. Who controls these rate?

Fixed exchange rate is controlled by an apex bank or a monetary authority. The control of flexible exchange rate is in the hands of demand and supply forces.

3. Modus operandi

A fixed rate is a rate where the value of a currency is fixed against value of other currencies, it is set eithe rin term sof gold or gold value of currencies that hav eto be exchnaged.

In flexible exchange rate, if the demand of a particular currency goes up, the exchange rate also goes up. Hence, the government has no control.

4. Changes in currency price

If currency value increases in fixed exchange rate it is called revaluation and if it decreases it is called devaluation,

whereas in flexible exchnage rate system, if currency increases in vakue, it is called appreciation and if it decreases in value, it is called depreciation.