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Disadvantages of fixed exchange rate - Fixed exchange rate system









One country that is loosening its fixed exchange rate is China.









Economic Advantages of a Fixed Exchange Rate As with a hard peg the drawback of a fixed exchange rate compared to floating exchange rates is that the government has less scope to use monetary and fiscal policy to promote domestic economic stability.


Advantages And Disadvantages Of Fixed Exchange Rate


An impossible authority swapping scale can likewise prompt the improvement of a parallel, informal conversion standard.



If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand.








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Description: Prevents destabilising movements in the exchange rate.

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Views: 3332 Date: 09.03.2022 Favorited: 22 favorites
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In a system of flexible exchange rates, the liquidity preference is high because the businessmen will like to enjoy wind fall gains from the fluctuating exchange rates.
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Prudent fiscal and monetary policies are the keys.
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Any differences in the supply and demand will be reflected automatically.

Latest Comments

    +10reps
    Therefore, they allocate substantial resources to predict the changes in the exchange rate, in an effort to manage their exposure to exchange rate risk.
    By: Darrel
    +708reps
    A country can avoid inflation if it fixes its currency to a popular one like the U.
    By: Sarad
    +495reps
    A prudent monetary policy is most likely to arise when two conditions are satisfied.
    By: Calie
    +698reps
    Introduces discipline in economic management — Fixed exchange rate gives opportunities to government to from following inflationary policies, and it will lead to be competitive market.
    By: Elie
    +54reps
    Bands may be symmetrically maintained around a crawling central parity with the band moving in the same direction as this parity does.
    By: Pistol
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