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MODEL PAPER 5 — Economics STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEconomicsMODEL PAPER 53 Marks
Question
Explain the demerits of flexible exchange rate.
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Answer

Following are the demerits of the flexible exchange rate system:
i. Instability and uncertainty- Flexible exchange rate system creates situations of instability and uncertainty. There are wide fluctuations in exchange rates that hamper foreign trade and capital movements between countries.
ii. Speculation- Flexible exchange rate encourages speculation.
iii. International trade and investment- Flexible exchange rate discourages international trade and investment by causing fluctuations in the value of a currency.
iv. Dampening effect on foreign trade

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