Q. The term “LERMS” is related to which of the following?

[A] Exchange rate

[B] Capital adequacy ratio

[C] Sustainable development

[D] Renewable energy

Answer: A

Explanation: India announced the Liberalized Exchange Rate Mechanism System (LERMS) in the Union Budget 1992–93 and in March 1993 it was operationalized.

  • India delinked its currency from the fixed currency system and moved into the era of floating exchange-rate system under it.
  • Indian form of exchange rate is known as the ‘dual exchange rate’, one exchange rate of rupee is official and the other is market-driven.
  • The market-driven exchange rate shows the actual tendencies of the foreign currency demand and supply in the economy vis-á-vis the domestic currency.
  • It is the market-driven exchange rate which affects the official rate and not the other way round.

Source: TMH Ramesh Singh