Question

Would the central bank need to intervene in a managed floating system? Explain.

Answer 1

Managed floating is a system that allows adjustment in exchange rate according to a set of rules and regulations which are officially declared in the FOREX market. Under this system, also called dirty floating, central bank intervenes to buy and sell foreign currency in an attempt to moderate exchange rate movements whenever they feel that such action is appropriate. Official reserve transactions are, therefore, not equal to zero.