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Fixed & Floating exchange policies

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Assume that you are an economic adviser and your focus is on understanding the different types of exchange rate systems. You have been hired to understand the shifts in monetary policy and their influence on monetary policy. The only causes of fluctuations in stock prices are unexpected shifts in monetary policies. Now, your task is to explain whether a fixed or floating exchange rate system would cause greater gains from international asset trade. In your answer, focus on the change in policy with regard to monetary policy and its influence on exchange rates.

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Step 1
A fixed exchange rate will cause greater gains from international asset trade. A fixed rate is an exchange rate regime where the currency's value (Yuan value) is fixed against the value of another currency, or to a basket of other currencies. The floating exchange rate or fluctuating exchange rate is one where the currency's value (Yuan value) is allowed to fluctuate ...

Solution Summary

This solution explains fixed & floating exchange policies, and the impact of monetary policy on international asset trade. The sources used are also included in the solution.