Consider the following statements in respect of managed floating exchange rate. Which is not correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Exchange rate does not remain within limits set by RBI
In a managed floating exchange rate system:
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Intervention by RBI in the foreign exchange market from time to time: This is correct. In a managed float, the central bank, such as the RBI, intervenes occasionally to stabilize or influence the exchange rate.
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Exchange rate gets influenced by the purchase and sale of foreign currency in the foreign exchange market: This is also correct. The exchange rate is influenced by supply and demand dynamics in the foreign exchange market, including the actions of the central bank.
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Exchange rate does not remain within limits set by RBI: This statement is not correct. While a managed floating system allows for some fluctuation, the central bank typically sets certain intervention limits or target bands within which the exchange rate is expected to fluctuate.