Final answer:
Under a flexible exchange rate regime, currencies are allowed to fluctuate according to market forces. Countries with high trade volumes in relation to GDP may prefer this system for its flexibility in adjusting to economic changes.
Step-by-step explanation:
An exchange rate regime is the way a country manages its currency in relation to other currencies and the foreign exchange market. The question pertains to identifying which exchange rate system allows governments to let their currencies fluctuate without fixed boundaries. The regime where currencies are allowed to float freely according to market forces of supply and demand is known as the flexible exchange rate (b), which is different from a fixed (pegged) exchange rate that ties the value of the currency to another major currency or basket of currencies.
In an environment of significant international trade, where a country has a high volume of imports and exports in relation to its GDP, governments may prefer a flexible exchange rate. This is because it allows for easier adjustment to trade shocks and balances of payments imbalances without the need for frequent government intervention. However, such a system can also lead to more volatility in exchange rates, potentially exposing exporters and importers to higher risk.