Question
India’s (foreign currency) exchange rate system can be
best described as?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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