Identifying the Exchange Rate Regime of Country X

Hard Currency Exchange Rates Exchange Rate Regimes

In the context of international finance, various countries adopt specific exchange rate regimes that dictate how their currencies are managed in relation to other currencies. Consider the case of Country X, which has pegged its currency to the US dollar. This peg has been in place for several years, and the government of Country X actively intervenes in the foreign exchange market to maintain this fixed exchange rate. However, recent economic challenges have led to significant pressure on Country X's foreign reserves, raising fears about the sustainability of this peg.

Given this background, which of the following statements best characterizes the exchange rate regime of Country X?

Country X has a flexible exchange rate regime, allowing the currency to float freely against other currencies.

Country X operates a fixed or pegged exchange rate regime, where the currency's value is tied to another currency.

Country X utilizes a managed float exchange rate regime, where the currency is primarily market-driven but subject to occasional interventions.

Hint

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