A _____ means the value of a currency is fixed relative to a reference currency.

Expert Solution

Answer - pegged exchange rate

Reason - A pegged exchange rate means the value of the currency is fixed with reference to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency is determined by the reference currency exchange rate. The central bank of the country which has pegged the exchange rate controls the value of currency so that it rise and falls with reference of the currency with which it's pegged.

A floating currency is the one whose rates are determined by the demand and supply in forex market. On the other hand when countries peg or fix their currency to a particular reference currency that usually helps them to overcome the fluctuations of their currency with reference currency.

Usually most of the countries peg their currency to U.S dollar as it's most traded currency in the world and these countries receive a lot of dollar payments and pegging helps them being stable in value of those receipts and avoid currency fluctuations.

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