Economic Awareness - Sectors of Indian Economy
In which exchange rate system does the central bank maintain the currency value by pegging it to another currency or a basket of currencies?
In which exchange rate system does the central bank maintain the currency value by pegging it to another currency or a basket of currencies?
easy Q2 of 15
Step-by-Step Solution
Step 1: Identify the system
The question describes a system where the central bank pegs the currency to another currency or basket and maintains its value.Step 2: Apply the concept
Fixed exchange rate system involves pegging and active maintenance by the central bank. Managed float allows partial intervention, floating has no intervention, and currency board is a strict fixed system with full reserve backing.Final Answer:
Fixed Exchange Rate → Option AQuick Check:
Fixed exchange rate = pegged and maintained by central bank ✅
Quick Trick: Fixed = Firm peg maintained by central bank.
Common Mistakes:
MISTAKES- Confusing fixed with managed float which allows some flexibility.
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