Question

Read the following statements - Assertion (A) and Reason (R): Assertion (A) : Fixed exchange rate is not volatile but Moating exchange rate in volatile XL-ECONOMICS Reason (R) : Under Fixed exchange rate system, demand and supply of foreign currency do not affect the exchange rate. From the given alternatives choose the correct one: Alternatives: Both Assertion (A) and Reason (R) are true and Resort (R) is the correct explanation of Assertion (A) (b Both Assertion (A) and Reason (R) are true and reason (R) is not the correct explanation of Assertion (A). (c) Assertion (A) is true but Reason (R) is false (d) Assertion (Alis false but Reason (R) is true ​

Answer 1

Explanation:

I don't know how to do it.

Answer 2

Assertion (A): Fixed exchange rate is not volatile but the floating exchange rate is volatile.Reason (R): Under a Fixed exchange rate system, demand and supply of foreign currency do not affect the exchange rate.

Both the assertion and the reason are true(option a)

• The level to which a quantity fluctuates over time is considered as volatility. The more volatile a variable is, the greater its magnitude of change or the faster it evolves over time.
• Fixed exchange rates have no volatility since they are not designed to move. Depending on how well it varies over time, a floating exchange currency may well not be volatile. Floating exchange rates, on the other hand, are likely to be more volatile since they are free to alter.

• Fixed exchange currencies are not allowed to vary freely or adapt to alter in demand & supply on a daily basis. The currency's exchange rate is set by the government whereas a floating exchange value, unlike a fixed rate, is controlled by supply and demand in the private market.

• Flexible exchange rates help to keep the trade balance in check.  When a trade imbalance arises in providence with such a floating exchange value demand for foreign (rather than local) currency increases, causing the foreign currency's price to rise in relation to the domestic currency. As a result, the cost of imported goods becomes less appealing to the home market, reducing the trade imbalance. This automated equalization does not happen with fixed exchange rates.