What currency arrangement system is used by the U.S.?

The correct choice is that the U.S. operates under a free floating currency arrangement. In this system, the value of the U.S. dollar is determined by market forces, including supply and demand, without direct intervention by the government or central bank. This allows the currency to fluctuate freely in response to economic events, interest rates, and other factors.

A free floating system provides flexibility for economic adjustments and can help absorb shocks from external economic conditions. For instance, if the U.S. economy strengthens compared to other economies, demand for dollars may increase, leading to an appreciation of the currency. Conversely, if economic conditions weaken, it may lead to depreciation.

In contrast, a managed floating system involves some intervention from the central bank to stabilize or adjust the currency's value within certain parameters but does not maintain a strict peg to another currency. A conventional peg involves fixing the currency's value to another currency, which is not applicable to the U.S. dollar. The term "risk floating" does not align with established currency arrangement terminology.

Understanding these different systems helps clarify how various countries manage their currencies and respond to global economic dynamics.