Question

A system that allows adjustment in the fixed exchange rate is referred to as  ______ 

Options

• Wider bands

• Crawling peg

• Managed floating

• None of the above

Answer 1

A system that allows adjustment in the fixed exchange rate is referred to as wider bands.

Explanation:

Wider bands refer to a method that allows for changes in a fixed exchange rate. It only allows for a 10% difference in currency values between any two countries. For example, a country's balance of payments (BOP) deficit can be reduced by weakening its currency, which increases demand for local goods as the purchasing power of 1 currency rises. This results in a rise in exports, which improves the BOP.