Choose the correct statements from the following in respect of exchange rate system.

(A) Floating Exchange Rate exchange rate is determined by the market forces of demand and supply.

(B) In a fixed exchange rate system, making domestic currency cheaper is called Devaluation.

(C) Increase in exchange rate implies that the price of foreign currency has increased and is called depreciation.

(D) Exchange rates between any two currencies adjust to reflect differences in the price levels in the two countries.

Choose the correct answer from the options given below:

Option 4: (A), (B), (C) and (D) -> Let's verify each statement:

(A) Floating Exchange Rate is determined by market forces of demand and supply - This is correct as floating rates fluctuate freely based on market conditions without government intervention.

(B) In a fixed exchange rate system, making domestic currency cheaper is called Devaluation - This is correct. Devaluation is the official reduction in the value of domestic currency relative to foreign currencies in a fixed rate system.

(C) Increase in exchange rate implies that the price of foreign currency has increased and is called depreciation - This is correct. When more domestic currency is needed to buy foreign currency, the domestic currency has depreciated (lost value).

(D) Exchange rates adjust to reflect differences in price levels between countries - This is correct and refers to the Purchasing Power Parity (PPP) theory, which states that exchange rates adjust to equalize the purchasing power of currencies.

All four statements are accurate descriptions of exchange rate systems and their mechanisms. -> correct