Economic Awareness - Sectors of Indian Economy
Which exchange rate system involves the domestic currency being fully backed by foreign currency reserves and the central bank having very limited discretion in monetary policy?
Which exchange rate system involves the domestic currency being fully backed by foreign currency reserves and the central bank having very limited discretion in monetary policy?
medium Q4 of 15
Step-by-Step Solution
Step 1: Understand currency board system
Currency board system requires full backing of domestic currency by foreign reserves and limits central bank discretion.Step 2: Differentiate from other systems
Fixed exchange rate involves pegging but not necessarily full reserve backing. Floating and managed float allow more discretion. Currency board is the strictest form.Final Answer:
Currency Board System → Option CQuick 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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