If neither changes in interest rates nor central bank intervention from the reserves can halt a depreciation/appreciation of a currency that is perceived to be not at its equilibrium exchange rate, then which of the following exchange rate regimes are viable over the longer term?

Question

Quizplus · Accepted Answer

A free-floating exchange rate regime allows the currency's value to fluctuate according to the foreign exchange market. Adopting a strong foreign currency like the dollar or euro can also provide stability and confidence, bypassing the issues of trying to maintain an artificial peg or manage a currency independently when market forces are overwhelming.

If Neither Changes in Interest Rates nor Central Bank Intervention