Question : Statement1: Managed floating rate system is a hybrid of fixed exchange rate and a flexible exchange rate system.
Statement 2: Managed floating rate system is also known as Dirty floating.
Option 1: Both the statements are true.
Option 2: Both the statements are false.
Option 3: Statement 1 is true and Statement 2 is false
Option 4: Statement 2 is true and Statement 1 is false
Correct Answer:
Both the statements are true.
Solution : The correct answer is (a) Both the statements are true.
Statement 1: Managed floating rate system is a hybrid of fixed exchange rate and a flexible exchange rate system. In a managed floating rate system, the exchange rate is allowed to fluctuate based on market forces like in a flexible exchange rate system, but the central bank may also intervene to influence the exchange rate, similar to a fixed exchange rate system.
Statement 2: Managed floating rate system is also known as Dirty floating. The term "Dirty floating" is used to describe a managed floating exchange rate system where the central bank occasionally intervenes in the foreign exchange market to influence the exchange rate. The term highlights that the exchange rate is not entirely freely floating, as there is some level of intervention by the central bank.
