Which of the following is a major advantage of a flexible exchange rate system?
A. Complete insulation from external shocks
B. No need for foreign exchange reserves
C. Elimination of all speculation
D. Automatic adjustment of balance of payments
Answer: Option D
Solution (By JKSSB Mock Tests)
Under a flexible exchange rate system, the exchange rate adjusts automatically to equilibrate the demand and supply of foreign exchange, helping to correct balance of payments imbalances.
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