SELECT * FROM question_mgmt as q WHERE id=5447 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=607 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED) CBSE Free NCERT Solution of 12th macro-economics Open Economy Macroeconomics how is the exchange rate determined under a flexib

Question:

How is the exchange rate determined under a flexible exchange rate regime?

Answer:

Under a flexible exchange rate regime, the rate of exchange is determined by the forces of demand and supply. In other words, the equilibrium rate of exchange occurs where demand and supply are equal to each other. This can be illustrated with the help of the given figure:

In the figure, x-axis represents demand for and supply of foreign currency and y-axis represents the exchange rate. DD is the demand curve that is downward sloping, showing an inverse relationship between the rate of exchange and demand for foreign currency. Whereas, the supply curve is upward sloping, showing a positive relationship between the rate of exchange and the supply of foreign currency. E is the equilibrium rate of exchange, where the demand equates the supply of foreign exchange (OR).

Now, if the exchange rate rises to OR1, then the supply exceeds the demand, forcing the exchange rate to fall back to OR. On the contrary, if the exchange rate falls to OR2, there is excess demand over supply. Hence, the rate of exchange rises from R2 to R.

Hence, the equilibrium exchange rate (OR) is determined by demand and supply of foreign currency.


< Previous Question

Next Question >

SELECT ex_no,question,question_no,id,chapter FROM question_mgmt as q WHERE courseId='3' AND subId='59' AND ex_no!=0 AND status=1 and id!=5447 ORDER BY views desc, last_viewed_on desc limit 0,10

  • Popular questions of class 12 Macro Economics

SELECT ex_no,question,question_no,id,chapter FROM question_mgmt as q WHERE courseId='3' AND subId='59' AND ex_no!=0 AND status=1 and id!=5447 ORDER BY last_viewed_on desc limit 0,10

  • Recently Viewed Questions of Class 12 Macro Economics

Comments

  • Answered by Ekta Mehta
  • 4 months ago

Taking Screenshots on your Samsung Galaxy M31s is very easy and quick.

  • Answered by Ekta Mehta
  • 4 months ago

Taking Screenshots on your Samsung Galaxy M31s is very easy and quick.

  • Answered by Ekta Mehta
  • 4 months ago

Taking Screenshots on your Samsung Galaxy M31s is very easy and quick.

Comment(s) on this Question


NCERT Solutions

Quick Links

Resources

Support