Which of the following are barriers to the free adjustments in the currency exchange rate in the For...........

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Which of the following are barriers to the free adjustments in the currency exchange rate in the Forex market?

Frequent sterilization by the Central bank
Exporting a commodity that is of the comparative advantage of a nation

Which of the above is/are correct?

1 only

2 only

Both 1 and 2

None

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Explanation:

Statement 1: Sterilization involves the infusion and extraction of liquidity in the market by the Central bank to control the total money supply in the economy. This keeps the exchange rate stable and thus blocks its free adjustment.

Statement 2: A nation usually exports a commodity of its comparative advantage meaning that it specializes in the export of those commodities that it can produce cheaply or at more competitive rates than the global economy.

This aids trade and does not block the free adjustment in the exchange rates.