Arrange the following currency exchange systems from the one with least independent monetary policy to the most independent monetary policy.
I.Horizontal bands
II.Currency board
III.Fixed peg
IV.Free floating

Question

Quizplus · Accepted Answer

A currency board and a fixed peg both involve pegging a currency's value to another currency or a fixed value, so they have less independent monetary policy than horizontal bands or free floating systems. Horizontal bands involve allowing the currency to fluctuate within a set of predetermined bands, giving a bit more independence. Free floating systems have the most independence as the exchange rate is determined by market supply and demand. Therefore, the correct order is: currency board, fixed peg, horizontal bands, free floating.

Arrange the Following Currency Exchange Systems from the One with Least