To sum up, there are merits and demerits of flexible exchange rate system. Whether a flexible exchange rate systems suits an economy depends on circumstances. It depends on characteristics of the economy which adopts flexible exchange rate system. Further, it may be noted that since 1971 Flexible exchange rate system is claimed to have the following advantages: Under flexible exchange rate system, a country is free to adopt an independent policy to conduct properly the domestic economic affairs. The monetary policy of a country is not limited or affected by the economic conditions of other countries. Merits of Flexible Exchange Rate: (i) Government intervention is reduced to the minimum. Bias of the Government or against exporter and importer will not be present. Usually Government fixes the value of currency which leaves the foreign currency undervalued. This is done to keep the price of essential imported items as low as possible. Differences between Flexible and Fixed Exchange Rate System: Flexible Exchange Rate System: Advantages: 1. It permits quicker adjustments in the exchange rate to changes in macro-economic factors such as changes in inflation rate, growth rate, and interest rates. 2. There is less likelihood of currency overvaluation.

Advantages of fixed exchange rates. A fixed exchange rate occurs when a country keeps the value of its currency at a certain level against another currency. Often countries join a semi-fixed exchange rate, where the currency can fluctuate within a small target level. For example, the European Exchange Rate Mechanism ERM was a semi-fixed exchange rate system.

This may give the system a deflationary bias. Policy conflicts - the fixed exchange rate may not be compatible with other economic targets for growth, inflation and  A metallic standard system such as the gold standard or the reserve currency Under the fixed exchange rate regime, nobody has to use scarce resources to  Advantages of Fixed Exchange Rates. The main arguments advanced in favor of the system of fixed or stable exchange rates are as follows: 1. Promotes 

A fixed peg system fixes the exchange rate against a single currency or a currency basket. The time inconsistency problem is 

Fixed exchange rate system is anti-inflationary in character. If exchange rate is allowed to decline, import goods tend to become dearer. High cost import goods then fuels inflation. Such a situation can be prevented by making the exchange rate fixed. Disadvantages: (i) Speculation Encouraged: Merits and Demerits of Fixed Exchange Rate of Foreign Currency! Exchange Rate Stability: In defence of fixed exchange rate system, it has been pointed out that it ensures stability in exchange rate. Exchange rate stability, it is said, is necessary for orderly development of the international economy and rapid growth of world trade.

4 Jun 2019 Exchange Rate Regimes (Fixed, Flexible And Managed Floating Exchange Rate And Their Merits And Demerits). Types of exchange rate 

Dear student Merits of fixed exchange rate system : Ensures assured returns and safety of funds invested: For an underdeveloped or  Fixed exchange rates. The IMF system. A fixed exchange rate regime involved currencies being fixed against a precious metal or against another currency, or  Managed floating exchange rates might also be used as a tool for a government to Latest IMF classification of countries using a managed floating system:. Meaning of Paper Standard 2. Merits of the Paper Standard 3. Demerits. The monetary authorities keep only a fixed quantity of gold in reserve for reasons this system is that it leads to instability in exchange rates whenever there are large  Exchange Control in India: Features, Objectives, Techniques and Demerits Exchange rates, under exchange control system, are fixed arbitrarily by the  Merits of Fixed Exchange Rate System: 1. Exchange Rate Stability: 2. Promotes Capital Movements: 3. Prevents capital outflow: 4. Prevents Speculation in foreign exchange market: 5. Serves as an anchor against inflation: 6. Promotes economic integration of the world: 7. Promotes growth of

fixed exchange rate: A system where a currency's value is tied to the value of another A managed float captures the benefits of floating regimes while allowing 

Exchange Control in India: Features, Objectives, Techniques and Demerits Exchange rates, under exchange control system, are fixed arbitrarily by the  Merits of Fixed Exchange Rate System: 1. Exchange Rate Stability: 2. Promotes Capital Movements: 3. Prevents capital outflow: 4. Prevents Speculation in foreign exchange market: 5. Serves as an anchor against inflation: 6. Promotes economic integration of the world: 7. Promotes growth of Fixed exchange rates enable the following: The reduction of uncertainty in international trade and portfolio flows: Exchange rate risk is a barrier to international business. Under the fixed exchange rate regime, nobody has to use scarce resources to guess the next period’s exchange rate. Fixed exchange rate system is anti-inflationary in character. If exchange rate is allowed to decline, import goods tend to become dearer. High cost import goods then fuels inflation. Such a situation can be prevented by making the exchange rate fixed. Disadvantages: (i) Speculation Encouraged: Merits and Demerits of Fixed Exchange Rate of Foreign Currency! Exchange Rate Stability: In defence of fixed exchange rate system, it has been pointed out that it ensures stability in exchange rate. Exchange rate stability, it is said, is necessary for orderly development of the international economy and rapid growth of world trade. Advantages of fixed exchange rates. A fixed exchange rate occurs when a country keeps the value of its currency at a certain level against another currency. Often countries join a semi-fixed exchange rate, where the currency can fluctuate within a small target level. For example, the European Exchange Rate Mechanism ERM was a semi-fixed exchange rate system. During the decades immediately following World War II, the advantages of fixed exchange rates proved less powerful than earlier presumed. Moreover, various theoretical developments argued for freely floating, rather than fixed or managed exchange rate systems, and better highlighted the following disadvantages of a fixed exchange rate.

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