An exchange rate that is set by official government policy is called a(n)__________ exchange rate.

Question

Quizplus · Accepted Answer

A fixed exchange rate is one that is set by official government policy, and remains constant or changes only within a narrow range over a given period of time. This is in contrast to a flexible (also known as floating) exchange rate, which is determined by market forces and can fluctuate more freely. An overvalued exchange rate means that the currency is priced too high relative to its fundamental value, while an undervalued exchange rate means the opposite. Fundamental exchange rates are those based on economic factors such as inflation, trade balances, and other macroeconomic variables.

An Exchange Rate That Is Set by Official Government Policy