Choose the correct statements from the following in respect of exchange rate system.

(A) Floating Exchange Rate exchange rate is determined by the market forces of demand and supply.
(B) In a fixed exchange rate system, making domestic currency cheaper is called Devaluation.
(C) Increase in exchange rate implies that the price of foreign currency has increased and is called depreciation.
(D) Exchange rates between any two currencies adjust to reflect differences in the price levels in the two countries.

Choose the correct answer from the options given below:

(A), (B), (C) and (D)

The correct answer is Option (4) → (A), (B), (C) and (D)

(A) Floating Exchange Rate is determined by the market forces of demand and supply. Correct. In a floating exchange rate system, the exchange rate is not fixed by the government or central bank but is allowed to fluctuate according to the foreign exchange market dynamics of demand and supply.

(B) In a fixed exchange rate system, making domestic currency cheaper is called Devaluation. Correct. Under a fixed exchange rate regime, when a government officially lowers the value of its currency in relation to a foreign currency, it is termed devaluation.

(C) Increase in exchange rate implies that the price of foreign currency has increased and is called depreciation. Correct. When the exchange rate increases (e.g., from ₹70 per dollar to ₹75 per dollar), it means more rupees are required to buy one dollar. This implies that the domestic currency (rupee) has depreciated.

(D) Exchange rates between any two currencies adjust to reflect differences in the price levels in the two countries. Correct. This is known as Purchasing Power Parity (PPP) theory — it suggests that exchange rates adjust over time so that identical goods cost the same in different countries when priced in a common currency.