In a flexible exchange rate system, the exchange rate is predominantly determined by market mechanisms. This means that the exchange rate is determined by the supply and demand for different currencies in the foreign exchange market. The market participants, such as banks, corporations, and individuals, buy and sell currencies based on their own assessment of the currency`s value and their expectations of future economic conditions.

Option 2, which suggests that the exchange rate is determined by the Central Bank, is incorrect. While central banks can intervene in the foreign exchange market and influence the exchange rate to some extent, they do not have complete control over it in a flexible exchange rate system.

Option 3, suggesting that the exchange rate is determined as a weighted index of a group of currencies, is also incorrect. This describes a fixed or managed exchange rate system, where the value of one currency is set in relation to a basket of other currencies. In a flexible exchange rate system, the value of a currency is determined solely by market forces.

Option 4, suggesting that the exchange rate is determined by the World Trade Organization, is also incorrect. The World Trade Organization is an international organization that deals with trade issues, but it does not have any authority or role in determining exchange rates.

In summary, under a flexible exchange rate