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Question : Which of the following exchange rate systems allows for fluctuations in currency values but with some intervention by the central bank?

Option 1: Floating exchange rate
  

Option 2: Fixed exchange rate
   

Option 3: Pegged exchange rate

 

Option 4: Managed float exchange rate


Team Careers360 10th Jan, 2024
Answer (1)
Team Careers360 21st Jan, 2024

Correct Answer: Managed float exchange rate


Solution : The correct answer is d) Managed float exchange rate

In a managed float exchange rate system, the currency's value is determined by market forces of supply and demand, allowing for fluctuations in currency values. However, the central bank intervenes in the foreign exchange market to influence or manage the exchange rate. The central bank may buy or sell its own currency to stabilize or influence its value in response to economic factors or policy objectives.

In a managed float exchange rate system, the central bank maintains a degree of flexibility in allowing the currency to fluctuate but also intervenes to prevent excessive volatility or to achieve certain economic goals, such as maintaining price stability or supporting export competitiveness.

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