Which of the following is MERIT of flexible exchange rate system?

• The problem of over/under valuation of the currency is permanently solved
• There is a requirement to hold 100% gold reserves by the government
• It discourages international trade due to stable currency rates
• It encourages venture capital

1 and 4

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.

The following are the merits of the same:

• It solves the problem of overvaluation/undervaluation of currencies
• There is no requirement of government to hold 100% of gold reserves
• It encourages the venture capital

The following are the demerits of the same:

1. There is no stability. Flexible exchange rate keeps on fluctuating according to demand and supply of the currency. 
2. Due to fluctuating currency exchange rate,  foreign trade is discouraged among the nations.