Which of the following are true-
a) Flexible exchange rate is determined by the market forces of demand and supply.
b) It solves the problem of overvaluation and undervaluation of currencies.
c) There is government intervention in the foreign exchange market.
Answer & explanation
Correct answer: option 2
Flexible exchange rate system refers to a system in which exchange rate between currencies of different countries is determined by the market forces of demand and supply. There is no government intervention in the forex market and the exchange rate is determined by the market forces of demand and supply. Thus, it solves the problem of overvaluation or undervaluation of currencies.