An exchange rate regime describes how a country manages its currency value. What distinguishes a fixed regime from a floating regime?

• A. A fixed regime pegs the currency to another currency or basket; a floating regime lets market forces determine value.
• B. A fixed regime sets rates by government decree; a floating regime always stays at a fixed rate.
• C. A fixed regime never allows depreciation; a floating regime never appreciates.
• D. A fixed regime uses a gold standard; a floating regime uses a fiat standard.

Answer: (A)