Question : Which of the following is not a fixed exchange rate system?
Option 1: Floating exchange rate
Option 2: Pegged exchange rate
Option 3: Managed float exchange rate
Option 4: Currency board arrangement
Correct Answer:
Floating exchange rate
Solution : A floating exchange rate system is a system where exchange rates are determined by market forces of supply and demand without government intervention. In a floating exchange rate system, exchange rates fluctuate freely and are not fixed.
The other options listed are fixed exchange rate systems:
b) Pegged exchange rate is a fixed exchange rate system where a country's exchange rate is fixed to the value of another currency, such as the US dollar or the euro.
c) Managed float exchange rate is a hybrid system where exchange rates are allowed to fluctuate within a certain range, but central banks may intervene to influence the exchange rate if necessary.
d) Currency board arrangement is a fixed exchange rate system where a country's central bank holds reserves of a foreign currency and commits to exchange the domestic currency for the foreign currency at a fixed exchange rate.
In each of these fixed exchange rate systems, the exchange rate is set or managed by a central authority, rather than being determined by market forces.
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