Rank each exchange system according to the amount of government intervention needed (from highest to lowest).

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, the government must actively intervene in the foreign exchange market to maintain the exchange rate at the fixed level. This requires the highest level of government intervention. In a managed exchange rate system, the government intervenes in the market to influence the exchange rate but allows some flexibility within a range. This requires moderate government intervention. In a flexible exchange rate system, the exchange rate is determined primarily by market forces, requiring the lowest level of government intervention. Therefore, the ranking of exchange systems by government intervention needed is: Fixed exchange rate, managed exchange rate, and flexible exchange rate. Choice C correctly lists the exchange systems in this order.

Rank Each Exchange System According to the Amount of Government