Asked by Jessica Pierre on Jul 16, 2024
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A system of fixed exchange rates is more likely to result in exchange controls than is a system of flexible (floating)exchange rates.
Fixed Exchange Rates
A currency system where the value of a currency is set at a predetermined rate relative to other currencies, instead of fluctuating in the open market.
Exchange Controls
Restrictions that a government may impose over the quantity of foreign currency demand by its citizens and firms and over the rate of exchange as a way to limit the nation’s quantity of outpayments relative to its quantity of inpayments (in order to eliminate a payments deficit).
Flexible Exchange Rates
Foreign exchange system where the value of currencies is determined by supply and demand in the forex market, without direct government intervention.
- Evaluate the dynamics of fixed versus flexible exchange rate systems.
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Learning Objectives
- Evaluate the dynamics of fixed versus flexible exchange rate systems.
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