Question : In the context of exchange rates, what does the term "pegged" mean?
Option 1: The exchange rate is determined by market forces.
Option 2: The exchange rate is fixed by the central bank.
Option 3: The exchange rate fluctuates freely.
Option 4: The exchange rate is determined by interest rate differentials.
Correct Answer: The exchange rate is fixed by the central bank.
Solution : The correct answer is b) The exchange rate is fixed by the central bank.
The term "pegged" refers to: The exchange rate is fixed by the central bank.
When a currency is pegged, its value is set and maintained at a specific level relative to another currency or a basket of currencies. The central bank of the country intervenes in the foreign exchange market to ensure that the exchange rate remains fixed within a certain range or at a specific rate.
This is in contrast to a floating exchange rate system where the exchange rate is determined by market forces of supply and demand. In a pegged exchange rate system, the central bank actively manages and controls the value of its currency to maintain stability and control fluctuations.
Question : Which of the following exchange rate systems allows the exchange rate to be determined solely by market forces of supply and demand?
Question : Which of the following exchange rate systems allows the exchange rate to be freely determined by market forces but with occasional central bank intervention?
Question : A ________ exchange rate is determined by the forces of supply and demand in the foreign exchange market.
Question : In a floating exchange rate system, the exchange rate is primarily determined by:
Question : In a floating exchange rate system, the exchange rate is determined by market forces, and fluctuations in the rate are caused by changes in ________.
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