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    Question

    India’s (foreign currency) exchange rate system can be

    best described as?
    A Floating Exchange Rate Correct Answer Incorrect Answer
    B Fixed Exchange Rate Correct Answer Incorrect Answer
    C Free Exchange Rate Correct Answer Incorrect Answer
    D Managed Float Exchange Rate Correct Answer Incorrect Answer
    E All of the above, depending on the market condition Correct Answer Incorrect Answer

    Solution

    There are mainly three types of exchange rate systems: flexible/ floating exchange rate system, fixed exchange rate system and managed floating (intermediate exchange rate system).  India has managed floating exchange rate system. In this rate is basically determined in the foreign exchange market through the operation of market forces. But during extreme fluctuations, the central bank (RBI) intervenes in the foreign exchange market. Objective of this intervention is to minimise the fluctuation in the exchange rate of rupee.

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