IGCSE Economics Paper-2: Specimen Questions with Answers 94 - 94 of 100

Passage

“As budget deficits reached an estimated $ 1.6 trillion for 2009 and the government printed money to finance its financial rescue programs, other countries and investors started to get nervous. China, which holds the most dollar reserves, raised concerns about rising American debt, and some of its top officials floated proposals that would replace the dollar as the world՚s reserve currency.”

Question 94 (3 of 5 Based on Passage)

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Pegged floating currencies are pegged to some band or value, which is either fixed or periodically adjusted. Explain the statement.

Explanation

Floating currencies that are pegged or fixed against some band or value which is periodically adjusted is known as Pegged floating currency. Pegged currencies are hybrid of fixed and floating currencies. Pegged currency is a hybrid of fixed and floating currency. There are three types of pegged float regimes:

  • Crawling bands: When the value of a currency is permitted to fluctuate within a range of band it is referred to as crawling band. This band is determined by the agreements of the international market or by unilateral decision or by a decision of the central bank.
  • Crawling pegs: A crawling peg is an exchange rate is a part if fixed exchange rate regime, it allows gradual depreciation or appreciation in an exchange rate.
  • Pegged with horizontal bands: This type of exchange rate is like crawling bands, but here the currency can fluctuate within a larger band which can be greater than one percent of the currency՚s value.
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