Q. With reference to the Foreign Exchange Market, consider the following statements:
1.It is the institutional framework where one national currency is exchanged for another.
2.Exchange rates in the foreign exchange market are determined purely through government mandates under all systems.
3.Active currency exchange in this market is typically seen under floating and managed exchange rate regimes.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
- The foreign exchange market serves as the institutional setup for exchanging one currency for another.
- Exchange rates in the forex market are not always determined by government mandate. In floating and managed regimes, they are market-driven or influenced, not fixed.
- Free-floating and managed exchange rate systems allow active participation in the forex market; it is restricted or non-existent in a fixed or hard-fixed regime.
Source: Indian Economy (Ramesh Singh)
