Exchange rates state the value of one currency in terms of other currencies. Which one of the following statements with respect to the exchange rate of currency is correct ?

examrobotsa's picture

Submitted by examrobotsa on

Q: (CDS-I/2021)
Exchange rates state the value of one currency in terms of other currencies.
Which one of the following statements with respect to the exchange rate of currency is correct ?

question_subject: 

Economics

question_exam: 

CDS-I

stats: 

0,122,99,42,122,37,20

keywords: 

{'exchange rates': [0, 0, 0, 1], 'exchange rate': [0, 0, 0, 2], 'currencies': [0, 2, 0, 1], 'rates': [0, 0, 1, 0], 'currency': [0, 1, 0, 3], 'other currencies': [0, 0, 1, 3], 'dollar': [0, 1, 0, 2], 'value': [0, 0, 1, 0], 'classical gold standard': [0, 0, 0, 1]}

Option 1: Floating exchange rates are rates in which the Governments interfere by buying or selling their currencies.

This statement is incorrect. Floating exchange rates refer to rates that are determined by market forces, such as supply and demand, without any government interference. In a floating exchange rate system, governments do not actively intervene in the foreign exchange market.

Option 2: Fixed exchange rates are rates set by Government decisions and maintained by Government actions.

This statement is correct. Fixed exchange rates are rates that are set and maintained by government decisions and actions. Governments establish a specific exchange rate for their currency and intervene in the foreign exchange market to keep the exchange rate within a certain range.

Option 3: Under the Bretton Woods System, the exchange rates are floated in terms of the rise or fall in the price of gold.

This statement is incorrect. Under the Bretton Woods System, which was in place from 1944 to 1971, exchange rates were fixed and not floated. However, the value of a currency was indirectly tied to gold, as countries had to maintain a fixed exchange rate with the United States, which in turn maintained a fixed exchange rate with gold.

Option 4: Under the classical gold standard, the exchange rates are fixed in terms of the price of the

Practice this on app