Question:
Identify which of the following is not one of the merits of a fixed exchange rate system:
Identify which of the following is not one of the merits of a fixed exchange rate system:
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Fixed exchange rates provide stability but can lead to currency misvaluation due to lack of market adjustment.
Updated On: Jan 31, 2025
- Ensures stability in exchange rate.
- Possibility of under or overvaluation of foreign currency.
- Prevents speculations in foreign exchange market.
- Coordination of macroeconomic policies becomes convenient.
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The Correct Option is B
Solution and Explanation
The possibility of under or overvaluation of foreign currency is a limitation of the fixed exchange rate system, not a merit. Fixed exchange rates provide stability but can lead to currency misvaluation.
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