Question : What is the term used to describe the practice of pegging a currency to a more stable foreign currency?
Option 1: Fixed exchange rate
Option 2: Flexible exchange rate
Option 3: Managed float exchange rate
Option 4: Currency board arrangement
Correct Answer: Fixed exchange rate
Solution : The correct answer is a) Fixed exchange rate
The term used to describe the practice of pegging a currency to a more stable foreign currency is a fixed exchange rate. In a fixed exchange rate system, a country's currency is set at a specific value relative to another currency, usually a major reserve currency such as the US dollar or the euro. The central bank of the country actively intervenes in the foreign exchange market to maintain the fixed exchange rate by buying or selling its own currency as needed. This policy is aimed at providing stability and predictability in international trade and investment by reducing exchange rate fluctuations. However, it requires careful management by the central bank to maintain the pegged exchange rate and may limit the flexibility of monetary policy in response to domestic economic conditions.
Question : What is the term used to describe the exchange rate regime where a currency's value is fixed to another currency or a basket of currencies?
Option 1: Floating exchange rate
Option 2: Managed float exchange rate
Option 3: Pegged exchange rate
Question : What term is used to describe the situation when a country's currency value is fixed to another currency or a basket of currencies?
Option 1: Floating exchange rate.
Option 2: Managed float system.
Option 3: Fixed exchange rate.
Option 4: Pegged exchange rate.
Question : Which of the following is an example of a fixed exchange rate system?
Option 1: Bretton Woods system
Option 3: Flexible 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
Question : What is the term used to describe the rate at which a central bank buys or sells its own currency in the foreign exchange market?
Option 1: Spot exchange rate
Option 2: Nominal exchange rate
Option 3: Intervention exchange rate
Option 4: Forward exchange rate
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