Understanding Managed Float Exchange Rates

Very Hard Currency Exchange Rates Exchange Rate Regimes

Imagine a developing country, Delta, which recently transitioned from a pegged exchange rate system to a managed float regime. This transition is accompanied by significant fluctuations in the value of Delta's currency, the Deltan pound, particularly in response to changes in the foreign capital inflows and international commodity prices. As a finance professional, you are analyzing the implications of Delta's new exchange rate regime on its economic stability and international trade.

Which of the following statements about Delta's managed float exchange rate regime is most accurate?

A managed float exchange rate provides more exchange rate stability for trade and investment than a purely floating system.

Under a managed float exchange rate, monetary authorities intervene in the currency markets to stabilize the currency within a predetermined band.

The move to a managed float exchange rate typically allows for a more responsive adjustment to external shocks without altering the currency’s nominal value.

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