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2021 · Q28

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 ?

General KnowledgeIndian Economy
  1. AFloating exchange rates are rates in which the Governments interfere by buying or selling their currencies.
  2. BFixed exchange rates are rates set by Government decisions and maintained by Government actions.
  3. CUnder the Bretton Woods System, the exchange rates are floated in terms of rise or fall in price of gold.
  4. DUnder the classical gold standard, the exchange rates are fixed in terms of price of dollar.

Explanation

Fixed exchange rates are set by government decision and maintained by government action (intervention in the foreign-exchange market), whereas floating rates are market-determined. The Bretton Woods system fixed currencies to the US dollar (convertible to gold at $35/oz), not floated them on gold prices, and the classical gold standard fixed currencies in terms of gold, not the dollar. Statement B is the correct one.