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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.

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Solution

A fixed exchange rate system can indeed work better for countries that already have a stable and effective monetary policy. Here's why:

  1. 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.

  2. 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.

  3. 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.

  4. 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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