Business Studies, asked by krithikthegreat8428, 1 year ago

What is Fixed and Floating Exchange Rate? State advantages and disadvantages of fixed exchange rate.

Answers

Answered by sayyadmohd78
1

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.

Advantages : The advantages of a fixed exchange rate include: Providing greater certainty for importers and exporters, therefore encouraging more international trade and investment. Helping the government maintain low inflation, which can have positive long-term effects such as keeping down interest rates.

Disadvantages : Developing economies often use a fixed-rate system to limit speculation and provide a stable system. These can be more disruptive to an economy than the periodic adjustment of a floating exchange rate regime.

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