Different ER Systems

Question 1

System

Answer 1

Features

Question 2

Fixed Currency with no Separate Legal Tender

Answer 2

One currency is used as the official legal tender for multiple countries, but there is no separate legal tender for each country.

Question 3

Currency Board System

Answer 3

A system where a country’s central bank holds a reserve of foreign currency, and issues its own currency based on the value of the reserve currency.

Question 4

Conventional Peg (Fixed Currency System)

Answer 4

A system where a country’s currency is pegged to the value of another currency, usually a major currency such as the US dollar or euro.

Question 5

Crawling Peg (Semi-Fixed Currency)

Answer 5

A system where a country’s currency is pegged to the value of another currency, but the exchange rate is periodically adjusted.

Question 6

Managed Float

Answer 6

A system where a country’s central bank intervenes in the foreign exchange market to influence the value of its currency.

Question 7

Free Float

Answer 7

A system where a country’s currency is allowed to fluctuate freely against other currencies based on supply and demand in the foreign exchange market.