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In which one of the following exchange rate systems, central banks intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are appropriate?

Solution

✅ Correct Option: 2

Under a managed floating (dirty float) system, the exchange rate is basically market determined, but central banks intervene by buying and selling foreign currencies whenever they feel movements need moderating. This mixes features of fixed and flexible systems.

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