In a(n) ____ exchange rate system, the foreign exchange market is totally free from government intervention.
A) pegged
B) dirty floating
C) freely floating
D) Bretton Woods
E) none of the above

Question

Quizplus · Accepted Answer

In a freely floating exchange rate system, the exchange rate is determined by the market forces of supply and demand, without any intervention or manipulation by the government or central bank. This contrasts with a pegged exchange rate system, where the government sets a fixed exchange rate and intervenes in the market to maintain that rate, and a dirty floating exchange rate system, where the government may intervene selectively to influence the exchange rate. The Bretton Woods system, which was in effect from 1944-1971, was a fixed exchange rate system that allowed for some flexibility in exchange rates within certain narrow bands.

In A(n) ____ Exchange Rate System, the Foreign Exchange Market