There are 3 types of foreign exchange rate systems i.e. fixed exchange rate, flexible exchange rate and managed floating system. In case of managed floating rate system, who stabilizes the currency in case of any appreciation or depreciation seen?
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Central Bank
In case of managed floating rate system, the central bank intervenes to stabilise the currency in case of any appreciation or depreciation seen. The central bank intervenes as a bulk buyer or seller of the foreign exchange to control the fluctuations in the exchange rate. When the exchange rate is high, central bank sells the foreign exchange and when the exchange rate is low, central bank buys foreign exchange.