What defines a semi-fixed exchange rate?

A semi-fixed exchange rate is defined as one where the currency is allowed to fluctuate within a predetermined narrow trading range against another currency or a basket of currencies. This means that while there is some degree of flexibility for the currency to respond to market forces, there are set boundaries to limit how much it can move. Central banks may intervene if the currency approaches the upper or lower limits of that range in order to maintain stability, which differentiates it from a purely floating exchange rate where there are no such interventions or boundaries.

In contrast to this option, a fully controlled currency would not fit the definition of semi-fixed, as it would be rigidly maintained at a specific value by the government without any flexibility. Similarly, a currency that floats freely does not have a semi-fixed characteristic since it can fluctuate widely without any constraints. Lastly, a currency that fluctuates unpredictably would imply a high level of instability and randomness, which is contrary to the controlled nature of a semi-fixed exchange rate. Thus, the essence of a semi-fixed exchange rate is its balance of flexibility within a confined range, ensuring some level of predictability and stability for economic participants.