Question

Explain the merits and demerits of flexible exchange rate.

Answer 1

The flexible exchange rate system provides the government more flexibility and they don’t need to perpetuate large stocks of foreign exchange reserves. The vital merit of flexible exchange rates is that movements in the exchange rate instinctively take care of the deficits and surpluses in the Balance of Payment.

Answer 2

The flexible exchange rate system provides the government more flexibility and they don’t need to perpetuate large stocks of foreign exchange reserves. The vital merit of flexible exchange rates is that movements in the exchange rate instinctively take care of the deficits and surpluses in the Balance of Payment.