A fixed exchange rate work better for countries that already have a stable and effective monetary policy.
Question
A fixed exchange rate
work better for countries that already have a stable and effective monetary policy.
Solution
A fixed exchange rate system can indeed work better for countries that already have a stable and effective monetary policy. Here's why:
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Stability: A fixed exchange rate provides stability in the value of a currency. This is beneficial for countries with stable monetary policies as it reduces the risk of currency fluctuations and encourages international trade and investment.
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Predictability: With a fixed exchange rate, businesses and investors can make decisions with the certainty of knowing the value of a currency. This predictability can help to foster economic growth.
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Inflation Control: A fixed exchange rate can help to control inflation. If a country's currency is pegged to a low-inflation currency, it can help to import the low inflation rate from the foreign country.
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International Confidence: A fixed exchange rate can boost international confidence in a country's economy, especially if it's pegged to a strong and stable
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