6.2.2.3 - Merits and Demerits of Flexible and Fixed Exchange Rate Systems
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Practice Questions
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What is a fixed exchange rate?
💡 Hint: Think about stability and predictability.
Name one disadvantage of flexible exchange rates.
💡 Hint: Consider the effect on international trade.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What is a significant drawback of fixed exchange rates?
💡 Hint: Look at what can undermine a fixed system.
Flexible exchange rates provide which of the following benefits?
💡 Hint: Think about how the market reacts to economic changes.
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Challenge Problems
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Consider a country with a fixed exchange rate. Describe a scenario where a speculative attack might lead to a currency crisis. What steps can the government take to mitigate this risk?
💡 Hint: Consider market psychology and government interventions.
Analyze how a sudden shift to a flexible exchange rate system could impact a country's trade balance. What factors should policymakers consider in this transition?
💡 Hint: Think about short-term vs. long-term effects.
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