2. Evaluate flexible and fixed exchange rates.

Expert Solution

A fixed exchange rate is controlled by an apex bank or a monetary authority. A flexible exchange rate is controlled by the demand and supply forces. A fixed exchange rate has a devaluation and evaluation in a currency. A flexible exchange rate can depreciate and appreciate the value of a currency

FOR BETTER UNDERSTANDING WE SEE THE FOLLOWING DIFFRENCES BETWEEN THESE TWO

Difference Between Flexible Exchange Rate and Fixed Exchange Rate

Basis	Fixed exchange rate	Flexible exchange rate
meaning	A fixed exchange rate is a rate which is maintained and controlled by the central government.	A Flexible exchange rate is a rate which is determined by the market force.
Controlled by	A fixed exchange rate is controlled by an apex bank or a monetary authority.	A flexible exchange rate is controlled by the demand and supply forces.
How it affects currency	A fixed exchange rate has a devaluation and evaluation in a currency.	A flexible exchange rate can depreciate and appreciate the value of a currency.
Hedging	There is no hedging risk if the country is using fixed exchange rate.	Hedging is used to reduce the currency risks in the flexible exchange rate.

jeff jeffy answered 2 years ago

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