Advantages And Disadvantages Of Fixed Exchange Rate

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Fixed exchange rate also known as pegged exchange rate refers to a scenario whereby a country ties the value of its currency to another single currency. This enables to obtain money for the same amount of the other currency. A fixed exchange rate is a regime applied by a country whereby the central bank ties the official exchange rate to another country’s currency or to the price of gold. The Bretton woods agreement (1944) made an agreement to peg all the currencies to the United States dollar as they had made an agreement to redeem all dollars for gold. It was created at the United Nations Monetary and financial Conference with an agreement to currencies pegged to the price of gold since the United State dollar was regarded as the reserve currency. denotes that a fixed exchange rate occurs when a country keeps the value of its currency at a certain level against another currency. The market forces cannot determine the changes in the exchange rate rather it is officially set by the monetary authorities or the government. “In the system of fixed exchange rate regime foreign central banks stand ready to buy and sell their currencies at a fixed price. A typical kind of this system was under Gold Standard System in which each country committed itself to convert freely its…show more content…
Currency fluctuations refers to the floating of exchange rate system which can be influenced by a number of factors which include the demand and supply of different currencies, differences in interest rates, capital flows, inflation and the performance in the economy. Due to these variances the currency tends to fluctuate from one level to the other. The fixed exchange rate regime makes trading more favorable as currency fluctuations may result to predicaments that leads to making the firms face difficulties in engaging into

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