Economic Awareness - Sectors of Indian Economy
Which exchange rate system is typically associated with a currency board arrangement where the domestic currency is fully backed by foreign reserves and the central bank has limited discretion?
Which exchange rate system is typically associated with a currency board arrangement where the domestic currency is fully backed by foreign reserves and the central bank has limited discretion?
medium Q14 of 15
Step-by-Step Solution
Step 1: Understand currency board system
The currency board system involves full backing of domestic currency by foreign reserves and limited central bank discretion.Step 2: Differentiate from fixed exchange rate
While fixed exchange rate involves pegging, currency board is a stricter form with automatic convertibility and full reserve backing.Final Answer:
Currency Board System → Option AQuick Check:
Currency board system = full foreign reserve backing with limited discretion ✅
Quick Trick: Currency board = strict fixed peg with full reserve backing.
Common Mistakes:
MISTAKES- Confusing currency board with general fixed exchange rate system.
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