flexible vs fixed exchange rates
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A.) What are the basic arguments in favor of fixed exchange rates?
B.) What are the basic arguments in favor of flexible exchange rates?
C.) What characteristics of either might cause a country to choose one over the other?
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Solution Summary
Flexible versus fixed exchange rate choices made by countries are examined.
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Fixed exchange rates can temporarily prevent disruptions due to currency fluctuations. For example, export companies may find their profits eroding simply because the domestic currency has appreciated, not because of any bad business decisions. This prevents the economy from running efficiently, because firms have to be constantly on guard against these types of losses instead of focusing on the best use of their resources. If their profits fall, it can effect the whole economy ...
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