The exchange rate arrangement in which the currency is adjusted periodically in small amounts at a fixed,preannounced rate or in response to changes in selective quantitative indicators is called
A) Currency Board
B) Pegged Exchange rate within horizontal bands
C) Crawling pegs
D) Exchange rate within crawling bands

Question

Quizplus · Accepted Answer

Crawling pegs is the exchange rate arrangement in which the currency is adjusted periodically in small amounts at a fixed, preannounced rate or in response to changes in selective quantitative indicators. Choice A is incorrect because the Currency Board is an extreme form of fixed exchange rate, in which the central bank fully backs its currency with foreign reserves. Choice B is incorrect because the pegged exchange rate within horizontal bands is a fixed exchange rate system with limited flexibility, where the currency is allowed to fluctuate within certain pre-determined bands. Choice D is incorrect because the exchange rate within crawling bands is a variation of the pegged exchange rate within horizontal bands, where the bands are adjusted periodically.

The Exchange Rate Arrangement in Which the Currency Is Adjusted