Question

Identify which of the following statements is true? (choose the correct alternative) (1)

a. The flexible exchange rate system gives the government more flexibility to maintain large stocks

of foreign exchange reserves.

b. In the managed floating exchange rate system, the government intervenes to buy and sell foreign

currencies.

c. In the managed floating exchange rate system, the central bank intervenes to moderate exchange

rate fluctuations.

d. In the fixed exchange rate system, market forces fix the exchange rate.
. ​

Answer 1

Answer:

The correct answer is option (a)

Explanation:

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Answer 2

Option b is the correct answer.

In the managed floating exchange rate system, the government intervenes to  buy and sell foreign currencies.

Why other statements are false?

1. The flexible exchange rate system gives the government more flexibility the government has no need to maintain large stocks because the movement of exchange manages the deficit and surplus in the BOP.
2. In the managed floating exchange rate system, the central bank intervenes to influence public expectations.
3. In the fixed exchange rate system, market forces do not fix the exchange rate.