Would the central bank need to intervene in a managed floating system? Explain why.
Download our app for free and get started
It refers to a system in which foreign exchange rate is determined by market forces and central bank influences the exchange rate through intervention in the foreign market.
- It is a hybrid of a fixed exchange rate and a flexible exchange rate system.
- In this system, Central bank intervenes in the foreign exchange market to restrict the fluctuations in the exchange rate within certain limits. The aim is to keep exchange rate close to desired target values.
- For this, Central bank maintains reserves of foreign exchange to ensure that the exchange rate stays within the targeted value.
- It is known as 'Dirty Floating'.
Download our appand get started for free
Experience the future of education. Simply download our apps or reach out to us for more information. Let's shape the future of learning together!No signup needed.*
Similar Questions
- 1View SolutionExplain two merits each of flexible foreign exchange rate and fixed foreign exchange rate.
- 2Explain why $G – T = (Sg – I) – (X – M).$View Solution
- 3View SolutionWhat is meant by foreign exchange rate? Why does a rise in foreign exchange rate cause a rise in its supply?
- 4Suppose it takes $1.25$ yen to buy a rupee, and the price level in Japan is $3$ and the price level in India is $1.2$. Calculate the real exchange rate between India and Japan $($the price of Japanese goods in terms of Indian goods$). ($Hint: First find out the nominal exchange rate as a price of yen in rupees$).$View Solution
- 5View SolutionThe following figures are based on the balance of payments accounts:
Calculate Balance of Trade.S.No.(₹ in crores)1.Imports of goods.4002.Export of goods.3403.Shipping.34.Travel Tourism, etc.55.Interest, dividends, profits.506.Unilateral Transfers.40 - 6View SolutionDefine foreign exchange rate. Why does the demand for foreign exchange rise when its price falls?
- 7View SolutionDistinguish between current account and capital account of balance of payments accounts. Is import of machinery recorded in the capital account. Give reasons for your answer.
- 8View SolutionExplain two sources each of demand and supply of foreign exchange.
- 9View SolutionWhat is meant by inflationary gap? State three measures to reduce this gap.
- 10View SolutionDistinguish between balance of trade and balance of payment.