Question

Answer the following question.
Explain the distinction between the flexible exchange rate and the managed floating exchange rate.

Answer 1

Basis of Difference	Flexible Exchange Rate	Managed Floating Exchange Rate
Meaning/ Determination	Exchange rate determined by the demand and supply forces only.	Exchange rate determined by forces of demand and supply with occasional government intervention.
Name	It is also called free exchange rate system	It is also called dirty floating system.
Fluctuations	As it is determined by demand and supply forces, it is prone to more fluctuations.	Comparatively less fluctuations as government intervenes to ensure that the rate does not vary much.
Government intervention	No intervention	Government intervenes by selling or purchasing foreign currency in the international market.
Predictability of Trade	Unpredictable as the exchange rate is flexible in nature.	Comparatively more predictable as the variations in exchange rates are governed by the monetary authorities.