Question : In the context of exchange rates, what does the term "pegged" mean?
Option 1: The exchange rate is determined by market forces.
Option 2: The exchange rate is fixed by the central bank.
Option 3: The exchange rate fluctuates freely.
Option 4: The exchange rate is determined by interest rate differentials.
Correct Answer: The exchange rate is fixed by the central bank.
Solution : The correct answer is b) The exchange rate is fixed by the central bank.
The term "pegged" refers to: The exchange rate is fixed by the central bank.
When a currency is pegged, its value is set and maintained at a specific level relative to another currency or a basket of currencies. The central bank of the country intervenes in the foreign exchange market to ensure that the exchange rate remains fixed within a certain range or at a specific rate.
This is in contrast to a floating exchange rate system where the exchange rate is determined by market forces of supply and demand. In a pegged exchange rate system, the central bank actively manages and controls the value of its currency to maintain stability and control fluctuations.
Question : Which of the following exchange rate systems allows the exchange rate to be freely determined by market forces but with occasional central bank intervention?
Option 1: Crawling peg exchange rate
Option 2: Fixed exchange rate
Option 3: Floating exchange rate
Option 4: Managed float exchange rate
Question : Which of the following exchange rate systems allows the exchange rate to be determined solely by market forces of supply and demand?
Option 1: Fixed exchange rate
Option 2: Floating exchange rate
Option 3: Managed float exchange rate
Option 4: Pegged exchange rate
Question : In a floating exchange rate system, exchange rates are determined by:
Option 1: Market forces of supply and demand
Option 2: Government intervention
Option 3: Central bank policies
Option 4: Fixed exchange rates
Question : A ________ exchange rate is determined by the forces of supply and demand in the foreign exchange market.
Option 1: fixed
Option 2: floating
Option 3: managed
Option 4: pegged
Question : In a floating exchange rate system, the exchange rate is primarily determined by:
Option 1: Market forces of supply and demand.
Option 2: Government interventions.
Option 3: Balance of trade.
Option 4: Interest rate differentials.
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