GENERAL KNOWLEDGE

Detailed explanation-1: -For example, small nations, whose financial and trade relationships are mainly with a single trading partner, often choose to adopt pegged rates. Large countries with large and diversified economies often prefer floating rates.

Detailed explanation-2: -Costa Rica, Hungary, and China are examples of this type of peg. Although soft pegs maintain a firm “nominal anchor” (that is, a nominal price or quantity that serves as a target for monetary policy) to settle inflation expectations, they allow for a limited degree of monetary policy flexibility to deal with shocks.

Detailed explanation-3: -PEGGED EXCHANGE RATE There are a variety of different types of pegged regimes defined by Jeffrey Frankel (1999) as intermediate arrangements or “soft pegs.” These include the adjustable peg, crawling peg, basket peg, and target zone or bands.