Question

Roll over each item on the left to read the description. Identify whether each of the statements is an argument for or an argument against a specific exchange rate regime, then place each item in the correct place on the chart.
2/5 points awarded Government adjusts Fluctuation with limits Scored Reduces uncertainty Argument for Argument Against Market-based Floating exchange rate Uncertainty Market-based Unknown elements Continual government intervention Fixed exchange rate No uncertainty Continual government intervention Managed-float Difficult Fluctuation with limits Difficult Pegged exchange rate Limited options Government adjusts Limited options Target Zone Reduces uncertainty Unknown elements No uncertainty

Answer 1

Answer:

Floating exchange rate

Here the market decides the value of the currency as it trade freely in the market based on supply and demand.

Argument For;

Market Based - It is market based therefore it reflects the true value of the currency.

Argument Against;

Uncertainty -  As it trades according to the whims of supply and demand, telling which direction it will go in terms of value is a difficult undertaking therefore financial decisions based on such are riskier.

Fixed exchange rate

Here the value of the currency is fixed either to the value of another currency or to the price of gold.

Argument For;

No Uncertainty -  As the currency is tied to another currency which is usually more stable or gold, the rate of the currency is more predictable.

Argument Against;

Unknown Elements

Managed float

In this exchange rate regime, the Central bank of a country intervenes in the Foreign exchange market to push or pull the currency in the direction that it prefers.

Argument For;

Government intervention - The Government Intervention ensures that the currency's value remains stable as well as allowing the Central bank to maintain a good balance of payments.

Argument Against;

Difficult - Maintaining the currency within the band preferred in a difficult undertaking that requires constant intervention in the Forex market.

Pegged exchange rate

The Central bank in this instance pegs the currency to a basket of currencies after setting an exchange rate it would prefer and then intervenes in forex market to keep it that way.

Argument For;

Reduces uncertainty - The movement of the currency is more predictable due to it being pegged to a basket of currencies.

Argument Against;

Continual government intervention - As this requires the currency to remain at a certain value, the government will keep intervening to ensure that it stays at that exact level.

Target zone

Here the Central Bank allows the currency to fluctuate on the market albeit with limits placed on how much it can do so.

Argument For;

Fluctuation with limits - By combining fixed regimes with floating regimes, the currency can maintain a semblance of true value whilst still be less uncertain.

Argument Against;

Limited options.

Answer 2

Floating exchange rate

Here the market determines the value of the currency as it trades willingly in the market based on supply and demand.

What are Supply and Demand?

Argument For;

Market-Based - It is market-based thus it reflects the true value of the currency.

Argument Against;

Uncertainty - As it trades according to the impulses of supply and demand, suggesting which direction it will go in terms of significance is a difficult undertaking therefore financial decisions based on such are riskier.

Fixed exchange rate

Here when the value of the currency is fixed either to the value of another currency or to the price of gold.

Argument For;

No Uncertainty - As the currency is tied to another currency which is usually additional stable or gold when the rate of the currency is more predictable.

Argument Against;

Unexplored Elements

Managed float

In this interaction rate regime, when the Central bank of a country intervenes in the Foreign exchange market to push or pull the currency in the direction that it prefers.

Argument For;

Government intervention - When The Government Intervention ensures that the currency's value stays stable as well as allows the Central bank to maintain a good balance of payments.

Argument Against;

Difficult - When the Maintaining the currency within the band is preferred in a difficult undertaking that is required constant intervention in the Forex market.

Pegged exchange rate

The Central bank in this instance pegs the currency to a basket of currencies after setting an interaction rate it would prefer and also then intervenes in the forex market to keep it that way.

Argument For;

Reduces uncertainty - When The movement of the currency is more predictable due to it being pegged to a basket of currencies.

Argument Against;

Continual government intervention - Now, As this requires the currency to remain at a certain value, the government will keep intervening to ensure that it stays at that exact level.

Target zone

When Here the Central Bank allows the currency to fluctuate on the market albeit with limits placed on how much it can do so.

Argument For;

Fluctuation with limits - By combining improved regimes with floating regimes, the currency can maintain a semblance of true value whilst still being less uncertain.

Argument Against;

Limited choices.

Find more information about Supply and Demand here:

https://brainly.com/question/6702244