assume that a country with an open economy has a fixed exchange-rate system and that its currency is currently overvalued in foreign exchange market which of the following must be true at the official exchange rate
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Under a managed floating exchange rate the exchange rate is allowed to fluctuate freely on the basis of the market forces of demand and supply but the government might intervene in order to avoid frequent and extreme fluctuations. The government might fix for itself a range of fluctuation that it would tolerate. If the fluctuation goes beyond the range then ot would intervene in the market.
Under a managed floating exchange rate the exchange rate is allowed to fluctuate freely on the basis of the market forces of demand and supply but the government might intervene in order to avoid frequent and extreme fluctuations. The government might fix for itself a range of fluctuation that it would tolerate. If the fluctuation goes beyond the range then ot would intervene in the market.
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