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Commerce Exam  >  Commerce Questions  >  Managed floating exchange rate is a system in... Start Learning for Free
Managed floating exchange rate is a system in which the
  • a)
    the central bank allow the exchange rate to determined by market forces
  • b)
    the central bank or Government allow the exchange rate to determined by market forces
  • c)
    the Government allow the exchange rate to determined by market forces
  • d)
    None of the above
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
Managed floating exchange rate is a system in which thea)the central b...
Managed Floating Exchange Rate System

The managed floating exchange rate system is a monetary system in which the central bank or government allows the exchange rate to be determined by market forces but intervenes in the foreign exchange market to influence the exchange rate when necessary. It is a hybrid of fixed and floating exchange rate systems.

Features of Managed Floating Exchange Rate System

- Central bank or government intervention: In a managed floating exchange rate system, the central bank or government intervenes in the foreign exchange market to influence the exchange rate when necessary. This intervention can be in the form of buying or selling foreign currency to increase or decrease the value of the domestic currency.

- Market forces determine the exchange rate: In a managed floating exchange rate system, the exchange rate is primarily determined by market forces such as supply and demand for foreign currency.

- Flexibility: The managed floating exchange rate system allows for greater flexibility than a fixed exchange rate system. The exchange rate can adjust to changes in market conditions, which can help to maintain stability in the economy.

- Stability: The managed floating exchange rate system can provide greater stability than a pure floating exchange rate system as the central bank or government can intervene to prevent sharp fluctuations in the exchange rate.

Advantages of Managed Floating Exchange Rate System

- Greater flexibility: The managed floating exchange rate system allows for greater flexibility than a fixed exchange rate system as the exchange rate can adjust to changes in market conditions.

- Stability: The managed floating exchange rate system can provide greater stability than a pure floating exchange rate system as the central bank or government can intervene to prevent sharp fluctuations in the exchange rate.

- Market-oriented: The managed floating exchange rate system is more market-oriented than a fixed exchange rate system as it allows market forces to determine the exchange rate.

Disadvantages of Managed Floating Exchange Rate System

- Uncertainty: The managed floating exchange rate system can create uncertainty for businesses and investors as the exchange rate can be subject to intervention by the central bank or government.

- Political interference: The managed floating exchange rate system can be subject to political interference as the central bank or government may intervene in the foreign exchange market for political reasons.

Conclusion

In conclusion, the managed floating exchange rate system is a monetary system in which the central bank or government allows the exchange rate to be determined by market forces but intervenes in the foreign exchange market to influence the exchange rate when necessary. It provides greater flexibility and stability than a fixed exchange rate system and is more market-oriented. However, it can create uncertainty for businesses and investors and be subject to political interference.
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Managed floating exchange rate is a system in which thea)the central b...
Yes it is correct as managed floating  refers to the manupulation done by the rbi with the help of forces of supply and demand 
At the time 
1 when the when rate of exchange will increase or currency depreciated  (from 60-70)the rbi (central bank ) will purchase the indian currency  from IMM (international money market)  as the supply of currency decreases its demand tends to increase and the rate of exchange will come to the point of equillibrium
And vive versa
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Read the following case study paragraph carefully and answer the question based on the same.The central bank of India i.e. Reserve Bank of India is the apex institution that controls the entire financial market. It’s one of the major functions is to maintain the reserve of foreign exchange. Also, it intervenes in the foreign exchange market to stabilize the excessive fluctuation in the foreign exchange rate.In other words, it is the central bank’s job to control a country’s economy through monetary policy; if the economy is moving slowly or going backward, there are steps that the central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all involve injecting more cash into the economy. The simple supply and demand economic projection occurs and currency will devalue.When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices. Whatever the central bank does or doesn’t do, will affect the currency of that country. Sometimes, it is within the central bank’s interest to purposefully affect the value of a currency. For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country’s commodities will seek cheaper supply; hence directly affecting the economy.Q. Which of the following steps should be taken by the central bank if there is an excessive rise in the foreign exchange rate?

Read the news report given below and answer the question that follow with respect to the same:The rupee rose by 3 paise to settle at ₹ 72.94 (provisional) against the US dollar on Monday, extending its gains for the fifth straight session despite heavy selling in the domestic equity market.At the interbank Forex market, the rupee opened at ₹ 72.95 against the American currency, and hit an intraday high of ₹ 72.89 and a low of ₹ 72.96 in day trade. It finally finished at ₹ 72.94, higher by 3 paise over its last close. On Friday, the rupee had settled at ₹ 72.97 against the American currency.Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, advanced 0.10 per cent to ₹ 90.32. “The rupee has managed to hold its fort around the ₹ 72.90 to 73 levels, but given the sell-off in equities and the likelihood of a rebound in the dollar index, we see the trend tilting slightly towards depreciation going forward,” said Sugandha Sachdeva VP-Metals, Energy & Currency Research, Religare NSE 0.52 % Broking.Q. India follows ___________________ system of Foreign Exchange, as per the given report.

Read the following case study paragraph carefully and answer the question based on the same.The central bank of India i.e. Reserve Bank of India is the apex institution that controls the entire financial market. It’s one of the major functions is to maintain the reserve of foreign exchange. Also, it intervenes in the foreign exchange market to stabilize the excessive fluctuation in the foreign exchange rate.In other words, it is the central bank’s job to control a country’s economy through monetary policy; if the economy is moving slowly or going backward, there are steps that the central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all involve injecting more cash into the economy. The simple supply and demand economic projection occurs and currency will devalue.When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices. Whatever the central bank does or doesn’t do, will affect the currency of that country. Sometimes, it is within the central bank’s interest to purposefully affect the value of a currency. For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country’s commodities will seek cheaper supply; hence directly affecting the economy.Q. Which of the following tools are used by the central bank to control the flow of money in the domestic economy?

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Managed floating exchange rate is a system in which thea)the central bank allow the exchange rate to determined by market forcesb)the central bank or Government allow the exchange rate to determined by market forcesc)the Government allow the exchange rate to determined by market forcesd)None of the aboveCorrect answer is option 'B'. Can you explain this answer?
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Managed floating exchange rate is a system in which thea)the central bank allow the exchange rate to determined by market forcesb)the central bank or Government allow the exchange rate to determined by market forcesc)the Government allow the exchange rate to determined by market forcesd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? for Commerce 2025 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Managed floating exchange rate is a system in which thea)the central bank allow the exchange rate to determined by market forcesb)the central bank or Government allow the exchange rate to determined by market forcesc)the Government allow the exchange rate to determined by market forcesd)None of the aboveCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Managed floating exchange rate is a system in which thea)the central bank allow the exchange rate to determined by market forcesb)the central bank or Government allow the exchange rate to determined by market forcesc)the Government allow the exchange rate to determined by market forcesd)None of the aboveCorrect answer is option 'B'. Can you explain this answer?.
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