A freely ﬂoating exchange rate system requires that the governments, and not central banks, maintain the value of the exchange rate.

Question

Quizplus · Accepted Answer

In a freely floating exchange rate system, the value of the exchange rate is determined by market forces of supply and demand, and governments do not intervene to maintain its value. Central banks may sometimes intervene in the foreign exchange market to influence the exchange rate, but it is not their primary responsibility.

A Freely ﬂOating Exchange Rate System Requires That the Governments