Two friends Mira and Sindhu were discussing the exchange rate systems.
‘Under this system, the exchange rates are determined by the market forces of demand and supply. However, deliberate efforts are made by the competent authority to keep the exchange rates within a specific range’.
The above-mentioned statement was given by Sindhu, identify the type of exchange rate system was she talking about?
a) Fixed Exchange Rate
b) Floating Exchange Rate
c) Managed Floating Exchange Rate
d) Managed Fixed Exchange Rate
‘Under this system, the exchange rates are determined by the market forces of demand and supply. However, deliberate efforts are made by the competent authority to keep the exchange rates within a specific range’.
The above-mentioned statement was given by Sindhu, identify the type of exchange rate system was she talking about?
a) Fixed Exchange Rate
b) Floating Exchange Rate
c) Managed Floating Exchange Rate
d) Managed Fixed Exchange Rate
Answers & Comments
Explanation:
Sindhu was talking about the c) Managed Floating Exchange Rate system.
In a managed floating exchange rate system, the exchange rates are primarily determined by the market forces of supply and demand. However, the competent authority, usually the central bank or government, intervenes in the foreign exchange market to influence and manage the exchange rates within a specific range. They do this by buying or selling their own currency to stabilize or adjust the exchange rates as needed. This system allows for some flexibility in exchange rates while also allowing authorities to maintain some control over them.
Verified answer
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Sindhu was talking about the following type of exchange rate system:
c) Managed Floating Exchange Rate
In a managed floating exchange rate system, exchange rates are primarily determined by market forces, but the competent authority (usually the central bank or government) intervenes to influence or stabilize the exchange rates within a specific range or to manage excessive volatility.