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Under the flexible exchange… (Class 12 Economics 2026, Q4)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/5/1 · 1 mark · MCQ

CBSE Class 12 Economics 2026: question 4

Set in the CBSE Class 12 board exam of 2026, paper 58/5/1, section A, question 4, for 1 mark. Try it first; the hints and our step-by-step solution are below.

Q4 · 1 mark · MCQOpen Economy Macroeconomics

Under the flexible exchange rate system, the exchange rate is determined by the ___________ .
(i) Government
(ii) Demand and supply
(iii) Intervention of the Central Bank
(Choose the correct option to fill in the blank)

  1. (A)Only (i)
  2. (B)Only (ii)
  3. (C)Only (iii)
  4. (D)(ii) and (iii)

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/5/1.

Hints

Open one hint at a time and try again before the next.

Hint 1

What sets a price in a free market?

Hint 2

Intervention means the rate is managed, not freely floating.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. Under a flexible (floating) exchange rate system, the rate is set in the foreign exchange market by the free play of demand for and supply of foreign currency.

  2. Government fixing or central bank intervention belongs to fixed or managed floating systems, so only (ii) applies. Option (B).

    1 mark

Answer: (B) Only (ii)

Where the marks are

  • Flexible rate set by demand and supply (1 mark)

Revise the chapter

Practise this chapterBoard-style questions from Open Economy Macroeconomics, one at a time, marked against the answer key and marking points.Back to the full paper2026 board paper, set 58/5/1: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.