The correct answer is option 2: Only 3
Flexible exchange rate system is the system where the exchange rate is determined by the market forces of demand and supply and there is no government intervention.
Here's a breakdown of why:
- It does not encourage venture capital: This is not a demerit of a flexible exchange rate system. Flexible Exchange Rate Promotes Venture Capital. This system promotes investor confidence by allowing easy entry and exit of capital, with minimal restrictions on repatriation of profits.
- There is no requirement of government to hold 100% gold reserves: This is actually a benefit of a flexible exchange rate system. It allows countries to have more flexibility in their monetary policies.
- There is no stability as the exchange rate keeps fluctuating according to demand: This is a demerit of a flexible exchange rate system. The constant fluctuations in exchange rates can create uncertainty for businesses involved in international trade, making it difficult to plan and make investment decisions.
- It encourages international trade beyond the capacity of nation: This is not a demerit. While a flexible exchange rate can facilitate international trade, it doesn't inherently encourage trade beyond a nation's capacity. The extent of international trade is influenced by various factors, including economic competitiveness, trade policies, and market demand.
|
