Question : Identify which of the following statements is true?
Option 1: The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves
Option 2: In the Managed floating exchange rate system, the government intervenes to buy and sell foreign currencies.
Option 3: In the Managed floating exchange system, the central bank intervenes to moderate exchange rate fluctuations
Option 4: In the Fixed exchange rate system, market forces fix the exchange rate.
Correct Answer: In the Managed floating exchange system, the central bank intervenes to moderate exchange rate fluctuations
Solution : The correct answer is (c) In the Managed floating exchange system, the central bank intervenes to moderate exchange rate fluctuations
In a managed floating exchange rate system, the exchange rate is allowed to fluctuate based on market forces, but the central bank intervenes in the foreign exchange market to moderate extreme fluctuations and maintain stability. The central bank may buy or sell foreign currencies to influence the exchange rate and prevent excessive volatility.
Question : It refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market.
Option 1: Fixed exchange rate system
Option 2: Flexible exchange rate system
Option 3: Managed floating rate system
Option 4: None of the above.
Question : Assertion: Managed floating rate system is a hybrid of foreign exchange rate and a flexible exchange rate system.
Reason: Central Bank maintains reserves of foreign exchange under Managed Floating rate system to ensure that the exchange rate stays within the targeted value.
Option 1: Both Assertion and Reason are true and correct explanation
Option 2: Both Assertion and Reason are true and incorrect explanation
Option 3: Assertion is true but Reason is false
Option 4: Assertion is false but Reason is true
Question : The exchange rate keeps on changing. This type of system is applicable under
Question : It refers to a system in which foreign exchange rate is determined by market forces in central bank influence the exchange rate.
Question : Which of the following exchange rate systems is a combination of fixed and floating exchange rates, where the central bank occasionally intervenes in the foreign exchange market?
Option 1: Managed float exchange rate
Option 2: Pegged exchange rate
Option 3: Currency board arrangement
Option 4: Crawling peg exchange rate
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