7.3 EXCHANGE RATE REGIME

An exchange rate regime refers to the method of how a currency is being managed in a country. 

• TRUE

• FALSE

Three types of exchange rate regime are fixed exchange rate, flexible exchange rate and floating exchange rate.

• TRUE

• FALSE

In a fixed exchange rate, the value of a country’s currency is matched to another currency.

• TRUE

• FALSE

Fixed exchange rate promotes greater stability and predictability of exchange rate movement and help stabilize a nation’s economy.

• TRUE

• FALSE

Major world currencies such as Japanese yen and British dollar adopt fixed exchange rate system

• TRUE

• FALSE

Managed floating system is a flexible exchange rate where the exchange rate is determined by market forces (demand and supply).

• TRUE

• FALSE

In a managed floating system, the central bank is not allowed to intervene in the foreign exchange market.

• TRUE

• FALSE

A currency board is generally required to maintain 100% reserves of the underlying foreign currency.

• TRUE

• FALSE

In a currency board the government is free to issue additional domestic currency without having enough foreign reserves to back it.

• TRUE

• FALSE