Question

Assertion (A): Managed Floating Exchange Rate is decided by market forces but remains
within a specific range as decided by central banks.
Reason (R): Exchange rate is determined by the forces of demand and supply of foreign
exchange, but the Central Bank intervenes to buy or sell foreign currency to moderate the
exchange rate fluctuations.
Read the following statements-Assertion (A) and Reason (R), and select the correct alternative
in each case.
(a) Both Assertion (A) and Reason (R) are true and Reason. (R) is the correct explanation of
Assertion (A).
(b) Both Assertion (A) and Reason (R) are true but Reason ® is not the correct explanation of
Assertion (A)
(c) Assertion (A) is true but Reason (R) false.
(d) Assertion (A) is false but Reason (R) is true.

Answer 1

Answer:

(a)

Explanation:

Answer 2

(a) Both Assertion (A) and Reason (R) are true and Reason. (R) is the              

    the correct explanation of Assertion (A).

• In this question, the Asserted statement says that "Managed Floating Exchange Rate is decided by market forces but remains within a specific range as decided by central banks", which is a correct statement as it's a system where the currency fluctuates on daily basis.
• Whereas, the reason given for this asserted statement is, "Exchange rate is determined by the forces of demand and supply of foreign exchange, but the Central Bank intervenes to buy or sell foreign currency to moderate the exchange rate fluctuations", which again justifies itself completely.
• Managed Floating Exchange Rate changes on day to day basis can lead to extreme conditions and control that Regulatory Authorities may need to enter into the process to stabilize and control the value of the currency.

• Unexpected Fluctuations are avoided due to this and the exchange rate is regulated for the proper working of the economy.

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