Under a managed float,
A) currency traders "buy low and sell high"
B) a central bank attempts to stabilize an exchange rate
C) national governments use fiscal policy to prevent inflation
D) managers allow product prices to float in response to supply and demand shifts
E) governments attempt to harmonize their tax policies.

Question

Quizplus · Accepted Answer

Under a managed float, a central bank attempts to stabilize an exchange rate by occasionally intervening in the foreign exchange market to buy or sell their own currency. This is done to prevent excessive exchange rate fluctuations that can be harmful to the economy. Currency traders buying low and selling high is a strategy that can be used in any exchange rate system, not just managed float. National governments using fiscal policy to prevent inflation and managers allowing product prices to float in response to supply and demand shifts are also unrelated to managed float. The idea of harmonizing tax policies is also not directly related to managed float, although it may be a goal of economic integration agreements such as the European Union.

Under a Managed Float