Under a managed float,
A) a central bank allows the forces of supply and demand to determine the exchange rate
B) a nation can have neither a trade deficit nor a trade surplus
C) a nation "pegs" its price level to a foreign currency
D) a nation "pegs" its price level at some fixed value
E) a central bank intervenes in the foreign exchange market to stabilize its exchange rate

Question

Quizplus · Accepted Answer

A managed float is a system where a central bank intervenes in the foreign exchange market to stabilize its exchange rate. While the exchange rate is still primarily determined by market forces, the central bank may buy or sell currencies to prevent excessive fluctuations in the exchange rate. This differs from a fixed exchange rate system, where the exchange rate is pegged to a fixed value, and a flexible exchange rate system, where the exchange rate is determined solely by market forces.

Under a Managed Float