Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run?
A) Pegged or fixed exchange rates
B) Adjustable pegged exchange rates
C) Managed floating exchange rates
D) Freely floating exchange rates

Question

Quizplus · Accepted Answer

The exchange-rate system described in the question is managed floating exchange rates. In this system, the central bank intervenes in the foreign exchange market to smooth out short-term fluctuations in the exchange rate without committing to maintaining any particular exchange rate in the long run. This approach is sometimes referred to as "leaning against the wind." Pegged or fixed exchange rates involve a commitment to maintaining a fixed exchange rate with no flexibility for short-term fluctuations. Adjustable pegged exchange rates involve periodic adjustments to the fixed exchange rate. Freely floating exchange rates allow the exchange rate to be determined by market forces with no government intervention.

Which Exchange-Rate System Involves a "Leaning Against the Wind" Strategy