ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Government or central bank participation in a floating exchange rate system is called a managed float. Countries that have a floating exchange rate system intervene from time to time in the currency market in an effort to raise or lower the price of their own currency.

Detailed explanation-2: -Most developing or emerging market economies use fixed exchange rates for their currencies. This provides exporting and importing countries more stability, and also keeps interest rates low.

Detailed explanation-3: -In the modern world, most of the world’s currencies are floating, and include the most widely traded currencies: the United States dollar, the euro, the Swiss franc, the Indian rupee, the pound sterling, the Japanese yen, and the Australian dollar.

Detailed explanation-4: -Bretton Woods Agreement In 1971, two years after President Nixon abandoned the gold standard, the Bretton Woods system collapsed. Countries stopped pegging their currencies to the value of the dollar and began floating their currencies instead.

Detailed explanation-5: -A floating exchange rate is an exchange rate system where a country’s currency price is determined by the foreign exchange market, depending on the relative supply and demand of other currencies. A floating exchange rate is not restrained by trade limits or government controls, unlike a fixed exchange rate.