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Open Economy Macroeconomics — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsOpen Economy Macroeconomics3 Marks
Question
Explain the meaning and two merits of fixed foreign exchange rate.
✓

Answer

Fixed exchange rate is the rate fixed by government.

Merits:

  1. It ensures stability in exchange rate. The exporters and importers have not to operate under uncertainty about the exchange rate. Thus it promotes foreign trade.
  2. It promotes capital movements. Fixed exchange rate system attracts foreign capital because a stable currency does not involve any uncertainties about exchange rate that may cause capital loss.

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