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Open Economy Macroeconomics — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsOpen Economy Macroeconomics3 Marks
Question
Discuss briefly the meanings of:
  1. Fixed Exchange rate.
  2. Flexible Exchange Rate.
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Answer

  1. Fixed Exchange Rate: It is the exchange rate determined by the government for conversion of domestic currency into foreign currency. This exchange rate does not vary with changes in demand and supply of foreign currency. This is because the government only has the power to change it.
  2. Flexible Exchange Rate: It is the exchange rate determined by the market forces of demand and supply in the foreign exchange market. This exchange rate varies with changes in demand and supply of foreign currencies. It is also known as flexible exchange rate'.

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