Question

Are fixed or floating exchange rates better for the euro zone countries?

Answer 1

Floating rates are the most common exchange rate regime today. For example, the dollar, euro, yen, and British pound all are floatingcurrencies. However, since central banks frequently intervene to avoid excessive appreciation or depreciation, these regimes are often called managed float or a dirty float.

A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority with respect to a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.

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