CA Foundation P4 · Chapter 9 · Question 12 of 15
A system in which the exchange rate is mainly determined by market forces but the central bank intervenes to smooth excessive volatility is called:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) A managed float
Explanation
Under a managed (dirty) float, the exchange rate is broadly market-determined, but the central bank buys or sells foreign exchange to curb excessive fluctuations. A fixed peg or currency board ties the currency to another currency at a set rate.
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