Exchange rates state the value of one currency in terms of other curre

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 ?

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

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

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

Under the classical gold standard, the exchange rates are fixed in terms of price of dollar.

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Answer is Wrong!

This question was previously asked in

UPSC CDS-1 – 2021

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The correct answer is B) Fixed exchange rates are rates set by Government decisions and maintained by Government actions.

Under a fixed exchange rate system, the government or central bank officially sets the value of its currency against another currency or a basket of currencies and intervenes in the foreign exchange market (buying or selling its own currency) to maintain this parity.

A) Floating exchange rates are primarily determined by market forces (supply and demand) with minimal or no government intervention. Managed float systems involve occasional intervention, but are distinct from purely floating rates. C) The Bretton Woods System involved fixed exchange rates pegged to the US dollar, which was convertible into gold. Exchange rates were not floated in terms of the rise or fall in the price of gold, but changes could occur through agreed-upon devaluations or revaluations (adjustable peg). D) Under the classical gold standard, exchange rates were fixed based on the relative gold content of each currency, not in terms of the price of the dollar specifically, as the dollar was just one currency whose value was defined by gold.

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