The major exchange rate systems are as follows: 

(a) Flexible Exchange Rate: A flexible, floating or fluctuating exchange rates are determined by market forces. The monetary authorities do not intervene for the purpose of influencing the exchange rate. Under freely fluctuating exchange rates, if there is an excess supply of a currency, the value of that currency in foreign exchange markets will fall. It will lead to depreciation of the exchange rate. Consequently equilibrium will be restored in the exchange market.

If there is shortage of currency, it will lead to the appreciation of exchange rate and . thereby leading to restoration of equilibrium in the exchange market. These market forces operate automatically without any action on the part of monetary authorities.

(b) Fixed Exchange Rate: It is also called pegged exchange rate. Under this type of exchange rate, all exchange transactions take place at an exchange rate that is determined by the monetary authorities. The authorities may fix the exchange rate by legislation or intervention in currency markets. They buy or sell currencies according to the needs of the country or may take policy decision to appreciate or depreciate the national currency.

For instance, if there is too much fluctuation in exchange rate in exchange market, the RBI may interfere and fix the rate of exchange of foreign currencies.

(c) Managed floating system: This system of exchange rate is a mixture of flexible and fixed exchange rate systems. Here, the exchange rate is fixed by the market forces viz., demand and supply. But, the statutory monetary authority (Reserve Bank of India) determines upper and lower limit of exchange rates. When the exchange changes beyond maximum and minimum limits, the central monetary authority intervenes and brings the exchange rate will within the predetermined limits.