Question

Give one difference between flexible exchange rate and fixed exchange rate.

Distinguish between fixed exchange rate and flexible exchange rate system.

Distinguish between flexible exchange rate and fixed exchange rate.

Answer 1

	Flexible Exchange Rate	Fixed Exchange Rate
1.	In a system with a flexible exchange rate, supply and demand dictate the exchange rate on the foreign currency market.	In a system with a fixed exchange rate, the nation’s central bank formally sets the currency rate through official action.
2.	The rate is allowed to fluctuate; the central bank does not often intervene.	To keep the currency rate stable, the central bank actively intervenes.
3.	Lowers the risks associated with international trade by providing exchange rate stability.	Involves a lot of swings, which makes things unpredictable.
4.	The government does not intervene to control the exchange rate.	The government actively intervenes to maintain the fixed rate.
5.	US Dollar to Euro exchange rate under a flexible system.	Indian Rupee under the fixed system before 1991.