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Question
Would the central bank need to intervene in a managed floating system? Explain why.
Solution
Managed floating system is a combination of two systems − fixed and floating exchange rate systems. It calls for the government or central bank to intervene when the need for the same is needed. The government or the central bank helps in moderating the exchange rate movements by purchasing and selling of foreign currency. Thus, to avoid dirty floating, the government exercises its power to intervene, whenever the need arises.
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