Question

INSTRUCTIONS

1. YOUR GRADE DEPENDS ON YOUR CONVICTION, CORRECTNESS, ELABORATION AND ELUCIDATION OF YOUR ANSWERS.
2. YOU SHOULD WRITE ABOUT ONE PAGE SINGLE SPACED

Evaluate flexible and fixed exchange rates.

Answer 1

Flexible and fixed exchange rate are two exchange rate regimes which will be different in the sense that when the exchange rate of one country is attached to the another country,it will be known as fixed exchange rate and if it will be depending upon the demand of the money and supply of the money in the market, it will be known as flexible exchange rate.

Fixed exchange rate refers to a rate which the government sets and maintains at the same level and it will be determined by the government or the central bank and change it will be done through devaluation and revaluation of the currency.it is an old and traditional method which is also known as pegged exchange rate in which government and Central Bank will be attempting to keep the value of currency fixed against the value of other currency.

Flexible exchange rate is a rate which vary according to the market forces and demand and supply in the economy and speculation in flexible exchange rate system will be very common, whereas these exchange rate will be set according to the demand and supply forces and their economic position of the country will be determining the market demand and supply for its currency, so these are highly flexible and transparent system and better adopted then fixed exchange rate system.