Discuss whether floating exchange rate is always preferable to fixed exchange rate?
Answers
Explanation:
PART OF
Global Trade Guide
ECONOMY ECONOMICS
Floating Rate vs. Fixed Rate: What's the Difference?
Floating Rate vs. Fixed Rate: An Overview
Fixed Rates
Floating Rates
Special Considerations
Special Considerations
Variations on Fixed Rates
Floating Rate vs. Fixed Rate: An Overview
More than $5 trillion is traded in the currency markets on a daily basis, an enormous sum by any measure. All of this volume trades around an exchange rate, the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your own. If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency.
It turns out that the key to success in both fixed and floating rates hinges on prudent monetary and fiscal policies. Fixed rates are chosen to force a more prudent monetary policy, while floating rates are a blessing for those countries that already have a prudent monetary policy.