ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A fixed exchange rate provides stability during times of economic uncertainty, which can encourage investment in your country and foster long-term prosperity. Lastly, by reducing trade barriers, a fixed exchange rate encourages worldwide trade and creates jobs across the board.

Detailed explanation-2: -Advantages of Fixed Exchange Rate System It ensures stability in foreign exchange that encourages foreign trade. There is a stability in the value of currency which protects it from market fluctuations. It promotes foreign investment for the country. It helps in maintaining stable inflation rates in an economy.

Detailed explanation-3: -Fixed exchange rates work well for growing economies that do not have a stable monetary policy. Fixed exchange rates help bring stability to a country’s economy and attract foreign investment. Floating exchange rates work better for countries that already have a stable and effective monetary policy.

Detailed explanation-4: -STABILITY OF EXCHANGE RATES: At a basic level, a currency is stable when the international currency exchange rates do not fluctuate too much as against the Consumer Price Index (CPI). Exchange rates express the value of one country’s currency in relation to the value of another country’s currency.

Detailed explanation-5: -It Frees the Government from Problems of Balance of Payments: A great merit of flexible exchange rates is that it frees the Government from problems of balance of payments. As has been seen above, the fixed exchange rates system leads either to deficit or surplus in balance of payments.