Question

Two economics teachers Shekhar and Nitin were discussing the exchange rate systems. Under this system, the central bank buys or sells foreign currencies so that changes of exchange rate remain within the targeted range. The above-mentioned statement was given by Nitin. Identify the type of exchange rate system that he was talking about.

[0.80 marks]

• A. Floating exchange rate
• B. Managed floating exchange rate
• C. Managed fixed exchange rate
• D. Fixed exchange rate

Answer 1

The correct option is B Managed floating exchange rate

Managed floating exchange rate is a specialised or hybrid form of flexible exchange rate system in which foreign exchange rate is determined by market forces but the Central Bank participates in the foreign exchange market to change the value of a currency in the desired direction.