ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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currency values are determined only by private sector market forces
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central banks sometimes manipulated exchange rates
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countries agree to buy or sell their paper currencies for gold
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the dollar’s value was allowed to fall on currency markets
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Detailed explanation-1: -A managed floating exchange rate is an exchange rate system that allows a nation’s central bank to intervene regularly in foreign exchange markets to change the direction of the currency’s float and/or reduce the amount of currency volatility. This exchange rate system is also known as a “dirty float”.
Detailed explanation-2: -In floating exchange rate systems, central banks buy or sell their local currencies to adjust the exchange rate. This can be aimed at stabilizing a volatile market or achieving a major change in the rate.
Detailed explanation-3: -A managed floating exchange rate is occasionally called a ‘dirty float’ as opposed to a ‘clean float’ where central banks do not intervene.
Detailed explanation-4: -Managed floating is a system in which exchange rate is determined by the forces of supply and demand in the international money markets but central bank intervenes to manage the exchange rate so that it does not slip out of the situation it is also known as floating exchange rate.
Detailed explanation-5: -Central banks manage currency by issuing new currency, setting interest rates, and managing foreign currency reserves. Monetary authorities also manage currencies on the open market to weaken or strengthen the exchange rate if the market price rises or falls too rapidly.