[PDF] advantages and disadvantages of flexible exchange rate

Flexible Exchange Rate System: Advantage and Disadvantage
  • (i) Automatic Adjustment in BOP:
  • (ii) No Collusion Between Internal-External Objectives:
  • (iii) Absorption of Sudden Shocks:
  • (iv) Minimum Buffer of Foreign Exchange Reserves:
  • (i) Uncertainty and Confusion:
  • (ii) Hampering Investment:
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  • What are the advantages of flexible exchange rates?

    Flexible exchange rates have the advantage that they allow a country to pursue an independent monetary policy, rather than have its own monetary policy set by an anchor currency country.

  • What are two disadvantages of flexible exchange rate?

    The drawbacks of this exchange rate include increased volatility, a lack of investment, a worsening of issues like inflation, unemployment, or a deficit in the balance of trade.

  • What are advantages and disadvantages of fixed exchange rate?

    Key Takeaways

    By pegging its currency, a country can gain comparative trading advantages while protecting its own economic interests.A pegged rate, or fixed exchange rate, can keep a country's exchange rate low, helping with exports.Conversely, pegged rates can sometimes lead to higher long-term inflation.
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