difference between
rn1fixed foreign exchange rate and flexible exchange rate system
rn
Answer to your question is as follows :
|
Basis of Difference |
Fixed Exchange Rate |
Flexible Exchange Rate |
|
Meaning |
Under this system, the exchange rate is held constant or fixed by the monetary authority of the country. |
Under this system, the exchange rate is determined by the market forces (demand for foreign exchange and supply of foreign exchange) |
|
Fluctuations in Exchange Rate |
As the exchange rate is fixed by the government, so, the exchange rate becomes free from frequent fluctuations. |
As the exchange rate is determined by the interaction of the demand and supply of foreign currency, so it is prone to fluctuations in the exchange rate as per the fluctuations in the demand and supply of foreign currency. |
|
Predictability of Trade |
This system makes the trade transactions more predictable by ensuring guarantee returns to the exporters as well as by helping importers in anticipating the payments more clearly. |
As the exchange rate varies as per the demand and supply of foreign currency, so the trade transactions remain unpredictable. |
Regards