Question

Match each type of exchange rate system to the way the exchange rate is determined.

1.exchange rate determined by demand and supply of foreign currency

2.exchange rate pegged to the value of another nation's currency

3.exchange rate determined by both government intervention and supply and demand


1.Managed

2.Floating

3.Fixed

Answer 1

Answer:

1. Exchange rate determined by demand and supply of foreign currency - Floating Exchange Rate. Under this system, the exchange rate is fixed at a point where demand for foreign currency is equal to the supply of foreign currency.

2. Exchange rate pegged to the value of another nation's currency - Fixed Exchange Rate. Under this system, the exchange rate of one countries currency is pegged against another country's currency.

3. Exchange rate determined by both government intervention and supply and demand- Managed Exchange Rate. Under this system, the exchange rate is determined by the forces of demand and supply of foreign currency but the central government can intervene at any time to change the rate.

Answer 2

Managed -> exchange rate determined by both government intervention and supply and demand

Floating -> exchange rate determined by demand and supply of foreign currency

Fixed -> exchange rate pegged to the value of another nation's currency