A managed float exchange rate regime is best described as one in which:

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Explore what a managed float regime means in practice, then evaluate each option.
Option a: 'The exchange rate is allowed to fluctuate within a defined band.' This captures the essence of a managed float (also called a dirty float), where market forces drive the rate but the central bank steps in to prevent excessive volatility and may maintain the rate within a targeted band. This is the textbook description of a managed float.
Option b: 'The rate is determined solely by domestic and foreign investors.' While market forces are important, a true managed float is not determined solely by investors; central bank interventions influence the rate, making this statement incomplete and inaccurate.
Option c: 'Only those parties that have government permits can trade currencies.' In a typical managed float system, the regime refers to how the exchange rate is set or managed, not to restrictions on who can trade currencies. This description confuses regulatory access with exchange-rate policy, so it is incorrect.
Option d: 'None of the options are correct.' Given that option a accurately describes a managed float, this statement is false.
Option e: 'The currency is fixed to gold reserves.' A fixed or gold-standard arrangement is distinct from a managed float; anchoring to gold is not what a managed float describes, so this is incorrect.
In summary, the correct depiction is a regime where the exchange rate is allowed to move within a defined band, with occasional central-bank intervention to maintain that band, and not purely market-determined, unrestricted, or gold-fixed. The other choices either mischaracterize the role of the central bank, regulatory access, or the nature of the exchange-rate regime itself.

FINS5512-Financial Markets & Institutions - T3 2025

A managed float exchange rate regime is best described as one in which:

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FINS5512-Financial Markets & Institutions - T3 2025

A managed float exchange rate regime is best described as one in which:

View Explanation

Log in for full answers

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