Determine if the items below describe fixed exchange rate systems, flexible (or

Question

Determine if the items below describe fixed exchange rate systems, flexible (or floating) exchange rate systems, or neither. Place each item in the corresponding bin. Consider each item based only on the information given. fixed exchange rate flexible exchange rate neither Today, the values of most world currencies are determined by market forces, but governments occasionally intervene to manage their currencies' values. The importance of monetary policy has increased under this system, which reinforces monetary policy's objectives the Bretton Woods system The forces of supply and demand for currency determine the exchange rates between countries The demand for dollars increases, but one Turkish lira still exchanges for $0.49. A government determines how many units of its currency can be exchanged for another country's currency, using macroeconomic policy to maintain it

Explanation / Answer

Fixed Exchange Rate:

The demand for dollar increases, but one Turkish lira still exchanges for $.49. (It is the government intervention to fix the change rate between dollar and Lira).

A government determines how many units of its currency can be exchanged for another country’s currency, using macroeconomic policy to maintain it. (It is a fixed exchange rate system).

Flexible Exchange rate:

The importance of monetary policy has increased under this system, which reinforces the monetary policy objectives. (It is used to develop stability in the exchange rate without intervening it).

The forces of demand and supply for currency determine the exchange rates between countries.

Neither:

The Bretton Wood system. It used the exchange rate determination depending upon the gold stock kept by the countries)

Today the value of most world currencies are determined by market forces, but government occasionally intervene to manage their currencies values. (It is the part of managed float exchange rate system).

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