Question

Identify which of the following statement is true?

Options

• The flexible exchange rate system gives the government more flexibility to maintain large stocks of foreign exchange reserves.

• In the managed floating exchange rate system, the government intervenes to buy and sell foreign currencies

• In the managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations

• In the fixed exchange rate system, market forces fix the exchange rate

Answer 1

In the managed floating exchange rate system, the central bank intervenes to moderate exchange rate fluctuations

Explanation:

The managed floating exchange rate system combines the benefits of both the flexible and fixed exchange rate systems. Central banks use this mechanism to buy and sell foreign currencies in an attempt to keep exchange rates stable.