4. What are the potential benefits and costs of a fixed exchange rate regime? Explain.

Question

Question

Answer 1

Answer #1

Answers -

Benefits

1 - The stability in the exchange rates is maintained through the fixed exchange rate system

2 - provides the certainity to the importers and exporters regarding the fluctuation of the exchange rates.

3 - Helps to keep the inflation rates in control by price stability

Demerits -

1 - The adjustments in the currency can be made in case of inflation or deflation

2 - The rigid currency rates may be not so beneficial for the economy.

Answer 2

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