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Question
Discuss briefly the meaning of Fixed Exchange Rate.
Solution
Fixed Exchange Rate: Fixed exchange rate (also termed as the pegged exchange rate) is the exchange rate that is determined in a fixed exchange rate system. In this system, the exchange rate is held constant or fixed by the monetary authority of the country. Under this regime, the monetary authority of the country pegs (or, fixes) the value of its currency against various other currencies.
This system of exchange rate avoids frequent fluctuations in the exchange rate and makes international trade more predictable. In other words, it ensures guarantee returns to the exporters.
A fixed exchange rate regime has the following two variants.
a. The Gold Standard System of exchange rate
b. The Bretton Woods System system of exchange rate
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