With a managed float,monetary disequilibrium is eliminated through
A)international reserve flows.
B)exchange rate changes.
C)international reserve flows and exchange rate changes.
D)None of the above.

Question

Quizplus · Accepted Answer

In a managed float system, central banks adjust the exchange rates through their interventions in foreign exchange markets. When monetary disequilibrium arises, central banks can use international reserve flows and/or exchange rate changes to manage the float and eliminate the disequilibrium. For example, if a country is experiencing a trade deficit and a resulting outflow of currency, its central bank may intervene by buying its currency in the foreign exchange market, which increases demand for its currency and raises its value relative to foreign currencies. This increased exchange rate can then reduce imports and encourage exports, reducing the trade deficit and restoring monetary equilibrium. Therefore, both international reserve flows and exchange rate changes are used to achieve a stable exchange rate and eliminate monetary disequilibrium in a managed float system.

With a Managed Float,monetary Disequilibrium Is Eliminated Through