Identify the exchange rate system in which central bank of a country intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are appropriate.

Option 1 -> Moderate floating is not a standard terminology used in exchange rate systems.

Option 2 -> Dirty floating (managed float) involves market-determined rates with occasional central bank intervention to stabilize excessive volatility.

Option 3 -> Flexible exchange rate (clean float) means rates are determined purely by market forces without any central bank intervention.

Option 4 -> Fixed exchange rate requires constant central bank intervention to maintain a pegged rate, not occasional intervention.

Hence, Dirty floating -> Also known as a 'managed float,' this system combines elements of both floating and fixed exchange rates. The exchange rate is primarily determined by market forces of supply and demand, but the central bank reserves the right to intervene in the foreign exchange market when it believes the currency is moving too rapidly in one direction or becoming too volatile. This intervention is discretionary and occurs 'whenever they feel appropriate' rather than being obligatory (as in fixed rates) or absent (as in clean floats). The term 'dirty' refers to the fact that the float is not 'clean' or pure, as it is influenced by government intervention. -> correct