Question

Regarding exchange rate stability, which pairing of system and stability level is correct?

Options

• Fixed — High; Flexible — High

• Fixed — Lower; Flexible — Lower

• Fixed — High; Flexible — Lower

• Fixed — Lower; Flexible — High

Answer 1

The fixed exchange rate system delivers high stability in exchange rates, while stability is lower under the flexible system, which is prone to exchange rate instability as a demerit.