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With reference to Exchange rate, consider the following statements: 
1. Managed floating exchange rate system is a mixture of a flexible exchange rate system and a fixed rate system. 
2. In dirty floating, 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. 
Select the correct answer using the code given below. 
  • a)
    1 only
  • b)
    Both 1 and 2
  • c)
    2 only 
  • d)
    Neither 1 nor 2
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
With reference to Exchange rate, consider the following statements:1. ...
Explanation of Exchange Rate Systems
The question pertains to two statements about exchange rate systems, particularly focusing on managed floating exchange rates and dirty floating.
Statement 1: Managed Floating Exchange Rate System
- This statement is correct. A managed floating exchange rate system is indeed a hybrid of flexible and fixed exchange rate systems.
- In this system, currency values are primarily determined by market forces, but central banks intervene occasionally to stabilize or influence their currency’s value. This intervention can occur to prevent excessive volatility or to achieve economic objectives.
Statement 2: Dirty Floating
- This statement is also correct. In a dirty floating system, central banks actively engage in buying and selling foreign currencies.
- The purpose of this intervention is to moderate exchange rate fluctuations that may be deemed excessive or harmful to the economy.
- Central banks assess the market conditions and may intervene when they believe the currency is overvalued or undervalued, which helps ensure stability in international trade and investment.
Conclusion
- Since both statements accurately describe aspects of managed floating exchange rates and dirty floating, the correct answer is option 'B', which states that both statements are true.
This understanding of exchange rate systems is crucial for analyzing how countries manage their currencies in the global market.
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With reference to Exchange rate, consider the following statements:1. Managed floating exchange rate system is a mixture of a flexible exchange rate system and a fixed rate system.2. In dirty floating, 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.Select the correct answer using the code given below.a)1 onlyb)Both 1 and 2c)2 onlyd)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?
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With reference to Exchange rate, consider the following statements:1. Managed floating exchange rate system is a mixture of a flexible exchange rate system and a fixed rate system.2. In dirty floating, 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.Select the correct answer using the code given below.a)1 onlyb)Both 1 and 2c)2 onlyd)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to Exchange rate, consider the following statements:1. Managed floating exchange rate system is a mixture of a flexible exchange rate system and a fixed rate system.2. In dirty floating, 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.Select the correct answer using the code given below.a)1 onlyb)Both 1 and 2c)2 onlyd)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to Exchange rate, consider the following statements:1. Managed floating exchange rate system is a mixture of a flexible exchange rate system and a fixed rate system.2. In dirty floating, 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.Select the correct answer using the code given below.a)1 onlyb)Both 1 and 2c)2 onlyd)Neither 1 nor 2Correct answer is option 'B'. Can you explain this answer?.
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