Asked by Sharath Rajendran on Jul 21, 2024
Verified
Managed float means:
A) a fixed exchange rate system with regularly scheduled periodic devaluations.
B) a freely floating exchange rate system.
C) a combination of freely floating exchange rates with occasional intervention by central banks.
D) a fixed exchange rate system managed by the European Community.
E) a flexible exchange rate system managed entirely by the IMF.
Managed Float
A currency exchange rate policy that allows a country's currency value to fluctuate in response to the foreign exchange market, but with central bank interventions to stabilize it when necessary.
Exchange Rate System
The mechanism by which a country manages its currency in relation to other currencies, involving policies on currency valuation, exchange regimes, and market conditions.
Central Banks
Institutions that manage a country's currency, money supply, and interest rates. They oversee the commercial banking system of their respective countries.
- Understand the principles of managed float exchange rate mechanisms and the function of central bank involvement.
Verified Answer
VN
Vignesh NarayananJul 23, 2024
Final Answer :
C
Explanation :
Managed float refers to a system where exchange rates are allowed to float freely based on market forces, but central banks occasionally intervene in the foreign exchange market to influence the exchange rate. This allows some degree of flexibility while also providing some stability to the exchange rate. Therefore, option C is the correct choice as it describes a combination of freely floating exchange rates with occasional intervention by central banks.
Learning Objectives
- Understand the principles of managed float exchange rate mechanisms and the function of central bank involvement.