Question

Distinguish between fixed exchange rate system and flexible exchange rate system.

Hint:

In fixed systems, stability is prioritized; in flexible systems, economic adjustments are key.

Answer 1

\[ \begin{array}{|l|l|} \hline \textbf{Fixed Exchange Rate System} & \textbf{Flexible Exchange Rate System} \\ \hline \text{The government fixes the currency value.} & \text{Market forces of demand and supply determine the currency value.} \\ \text{Ensures stability in international trade.} & \text{Allows currency to adjust automatically to economic changes.} \\ \text{Requires constant intervention by the central bank.} & \text{Minimal intervention by the central bank.} \\ \hline \end{array} \]