Explain the determinations of exchange rate in a free play market. ?

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Explain the determinations of exchange rate in a free play market. ?

Aside from factors such as interest rates and inflation, the currency exchange rate is one of the most important determinants of a country's relative level of economic health. Exchange rates play a vital role in a country's level of trade, which is critical to most every free market economy in the world.

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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?

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Directions: Read the following case study and answer the questions 51 to 55.In the Indian context, the RBI Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. RBI acts as the chief monetary authority and the custodian of foreign exchange assets. RBI accumulates foreign currency reserves by purchasing from authorised dealers in the open market operations. The type of instruments in which RBI can invest is stipulated in the RBI Act. The aid received by the government also becomes a part of the reserves.The Asian crisis tells us how countries suffer due to ill management of the foreign exchange reserves. Many countries foresawthe vulnerability to the external shocks and accumulated heavy foreign exchange reserves. Countries want to keep their exports competitive. Hence, they prefer to depreciate their currencies against dollars. In recent days, there has been a continuous appreciation of rupee vis-a-vis dollar. To avoid the appreciation of rupee, RBI has been continuously interfering in the money market. RBI is buying dollars from the market. The dollars that are being bought add to the foreign exchange kitty.Unlike, in the past, the NRI community is more dispersed now, not just confining to the Gulf. Due to software boom, Indians are heading towards new destinations. NRIs are doing well there and ploughing back their savings to India. Moreover, foreign institutional investors are also making huge investments into Indian stocks.The emergence of India as an offshore outsourcing hub has created new opportunities. There are huge dollar earnings for India. Further, India is also proving to be a worthy manufacturing hub for many companies. All these factors played a positive role in building up of huge foreign exchange reserves.Q.During the economic crisis of 1990s, India opted for which of the following foreign exchange measure?

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Choose the correct statement(s) from given below?

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Under managed floating exchange rate system, central bank determines the exchange rate and excessive fluctuation is checked by the market forces.

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Assertion (

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Explain the determinations of exchange rate in a free play market. ?

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Explain the determinations of exchange rate in a free play market. ? for Class 12 2024 is part of Class 12 preparation. The Question and answers have been prepared according to the Class 12 exam syllabus. Information about Explain the determinations of exchange rate in a free play market. ? covers all topics & solutions for Class 12 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Explain the determinations of exchange rate in a free play market. ?.

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