Question

Market forces of demand and supply, actively interact under ........... exchange rate system to determine the foreign exchange rate. (Choose the correct option to fill in the blank)

• A. Fixed
• B. Flexible
• C. Managed floating
• D. Fixed floating

Hint:

The managed floating system allows market forces to play the primary role but also gives room for central bank intervention to address currency fluctuations.

Answer 1

The Correct Option is C

In a managed floating exchange rate system, the market forces of demand and supply primarily determine the exchange rate. However, the central bank may intervene occasionally to stabilize the currency or prevent excessive fluctuations. This system is a hybrid of both fixed and floating exchange rate systems.