Under ______ system, the central bank intervenes to buy and sell foreign currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are appropriate.

Managed floating.

The correct answer is Option (3) → Managed floating.

Under the managed floating exchange rate system, also called a “dirty float”, the exchange rate is largely determined by market forces of demand and supply in the foreign exchange market. However, the central bank intervenes whenever it feels necessary to stabilize excessive fluctuations or maintain economic stability.

• Fixed exchange rate requires the central bank to intervene continuously to keep the rate at a pre-determined level.

• Flexible (or floating) exchange rate is determined purely by market forces, with little to no central bank intervention.

• Gold Standard is a historical system where the value of a currency is fixed in terms of gold.