No. Of signals generated using two flags one below the other In first there will be 7 flags and in below there will be 6flags,so 7*6=42 ways

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Use of permutation so according to problem how to arrange 7 objects taken 2 at a time 
so as there are only two flags be arranged with 7 different colors so the first flag can be arranged in any 7 ways and as for the second flag we have only 6 flag left(as 1 flag is already used) so it can be arranged in 6 ways

 so 7 × 6 = 42 ways it can be arranged