Define the two “pure” types of exchange-rate systems.
What will be an ideal response?
The two “pure” types of exchange-rate systems are flexible- and fixed-exchange-rate systems. A flexible-exchange-rate system is one in which the exchange rate is determined by the demand and supply of currencies and in which no government intervention occurs. A fixed-exchange-rate system is one in which the government determines exchange rates and is required to constantly intervene in the foreign exchange markets to maintain the value of its currency at the set rates.
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