Identifying Exchange Rate Regimes

Exchange rate regimes refer to the ways in which a country manages its currency in relation to other currencies. These regimes can significantly impact international trade and investment flows. Understanding the characteristics of different exchange rate regimes is crucial for analyzing the effects on a nation’s economy. One common type of exchange rate regime allows a country's currency to fluctuate freely against other currencies. In contrast, another type fixes the currency's value against a specific foreign currency or a basket of currencies.

Based on this definition, which of the following exchange rate regimes describes a system with a fixed exchange rate?