Which of the following best describes pegging (linking) in currency exchange?

Pegging, also known as linking, in currency exchange refers to a system where a country's currency value is tied to another major currency, such as the US dollar or the euro. This practice establishes a fixed exchange rate determined by the government or monetary authority of the currency in question. Under this system, the pegged currency maintains a stable value relative to the anchor currency, reducing volatility and providing more certainty for international trade and investment.

By contrast, flexible exchange rates are determined by market forces where supply and demand play a significant role in determining the currency value. Similarly, rates set by market forces and fluctuating currency values do not apply in the context of pegging, as these scenarios imply variability and lack the stability that pegging is intended to ensure. Thus, the answer accurately reflects the fundamental characteristic of pegging in currency exchange.