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A country whose central bank never intervenes in currency markets operates which regime?
AA floating exchange rate
BA hard peg regime
CA soft peg regime
DA fixed exchange rate
Answer & Solution
Correct answer: A. A floating exchange rate
1. Classify by whether the market or the state sets the rate.
2. A government intervening establishes a peg for its currency.
3. A central bank can implement soft peg and hard peg policies.
4. A policy allowing the foreign exchange market to set exchange rates is a floating exchange rate.
5. No intervention therefore means a floating exchange rate.
_Source: OpenStax Principles of Macroeconomics for AP Courses 2e (CC BY 4.0), Ch 15 'Exchange Rates and International Capital Flows'_
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