Question

Central bank conducts _____________ to regulate exchange rate of the domestic currency.
(a) Managed floating
(b) Dirty floating
(c) None of these
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Answer 1

Answer:

Manage Floating

Explanation:

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Answer 2

Answer:

The appropriate response to the question is Managed floating. In order to control the native currency's exchange rate, the central bank uses controlled floating.

Explanation:

In a managed floating system, market forces control the foreign exchange rate. To keep exchange rate variations within predetermined bounds, the central bank must take action in this system. Maintaining the exchange rate near to the intended target values is the goal. To ensure that the currency rate stays within the desired range, the central bank maintains foreign exchange reserves. A managed floating exchange rate system is one in which the exchange rate is neither fully fixed nor completely free. Instead, central bank intervention maintains the currency's value relative to other currencies within a range.

In order to reduce market volatility and swings, a central bank will buy and sell foreign currency on the foreign exchange market.

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