Exchange Rate Management: Fixed Parity with Crawling Bands

Currently, the exchange rate of a country with high inflation is fixed against the US dollar. Every Friday, the central bank announces a new fixed rate against the US dollar for the coming week. What _best describes_ this exchange rate system?

Incorrect. In a target zone regime, the exchange rate is fixed and is not adjusted. The bands around the fixed parity rate are also not adjusted, but are wider than the conventional fixed-rate system, up to + or - 2% or wider.

Correct. The fixed rate is adjusted to keep pace with the inflation rate, and the announced changes in the exchange rate are designed to manipulate inflation expectations.

Incorrect. In this system, the fixed exchange rate is not adjusted. The bands around the fixed parity rate are gradually widened on a preannounced schedule, however.

A target zone regime

A system of active crawling pegs

A system of fixed parity with crawling bands