Government Intervention to Appreciate Currency

Steps:

• Buying its own currency increases demand, raising its value and causing appreciation.
• Under freely floating rates, governments avoid intervention to let markets decide.
• Managed floats allow occasional intervention to guide rates toward targets.
• Fixed rates require intervention to maintain the peg, not to depreciate.

Why B is correct:

• In a managed float, governments buy their currency to counteract depreciation pressures and achieve appreciation, as defined by IMF guidelines on flexible regimes with intervention.

Why the others are wrong:

• A: Freely floating systems prohibit government intervention, so buying currency contradicts the regime.
• C: To depreciate under fixed rates, governments sell their currency to increase supply, not buy it.
• D: Devaluation lowers the official rate via policy, requiring selling currency to weaken it, not buying.

Final answer: B