All Courses
Explore Courses UPSC Exam UPSC Test Series Free Notes EduRev Infinity Get the App Login Join for Free
Sign in Open App
UPSC Exam  >  UPSC Questions  >  Fixed exchange rate isa)is fixed by the busin... Start Learning for Free
Fixed exchange rate is
  • a)
    is fixed by the businesses in an economy
  • b)
    is fixed by the Government in an economy
  • c)
    is fixed by the foreign exchange market
  • d)
    is fixed by the anybody in an economy
Correct answer is option 'B'. Can you explain this answer?
Clear all your UPSC doubts with EduRev
Most Upvoted Answer
Fixed exchange rate isa)is fixed by the businesses in an economyb)is f...
A fixed or pegged rate is determined by the government through its central bank. The rate is set against another major world currency (such as the U.S. dollar, euro, or yen).
Free Test
FREE
Start Free Test
Start Free Test
Community Answer
Fixed exchange rate isa)is fixed by the businesses in an economyb)is f...
Understanding Fixed Exchange Rate
A fixed exchange rate, also known as a pegged exchange rate, is a monetary policy strategy where a country's currency value is tied or pegged to another major currency or a basket of currencies. This approach is often adopted to maintain stability in international prices and enhance trade relations.
Key Characteristics
- Government Intervention: The fixed exchange rate is established and maintained by the government or the central bank of the country. They set the exchange rate level and commit to buying or selling their currency to maintain that rate.
- Stability and Predictability: By fixing the currency value, governments aim to reduce volatility in exchange rates, providing a stable environment for international trade and investment. This predictability can benefit exporters and importers by minimizing foreign exchange risk.
- Monetary Policy Control: A fixed exchange rate can limit a country's ability to adjust its monetary policy independently. The government must ensure that its currency remains at the pegged rate, which may require significant foreign reserves or adjustments in domestic monetary policy.
Comparison with Other Systems
- Floating Exchange Rate: Unlike fixed rates, floating exchange rates fluctuate based on market forces. This system allows for more flexibility but can lead to unpredictable economic conditions.
- Managed Float: Some countries use a managed float system where the currency is primarily determined by the market but the government intervenes occasionally to stabilize the currency.
In conclusion, a fixed exchange rate is a government-imposed policy aimed at stabilizing the currency value, fostering economic stability, and facilitating international trade.
Explore Courses for UPSC exam

Similar UPSC Doubts

New economic policies helped China's economy recover from its inertia. Due to privatization of agriculture, there was a significant increase in agricultural products and rural income. The amount of private savings increased in the rural economy and due to this the number of rural industries increased rapidly. The growth rate of China's economy remained fast in both industrial and agricultural sectors. There was a significant increase in foreign trade due to new trade laws and the creation of Special Economic Zones (SEZ). China has emerged as the most attractive country for foreign direct investment in the whole world. China now has huge reserves of foreign exchange and on the basis of this, China is investing in other countries. China joined the WTO in 20011998 Features and objectives of privatization of industriesWent. In this way, China took another step towards opening its economy to other countries. Now China plans to deepen its connection with the world economy and give its desired shape to the future world order. extract notes easy language?

Passage 2After the end of World War II, a pervasive, but unfortunately fallacious, economic perspective took hold. Based on the United States successful emergence from the Depression, the idea that war was good for an economy became fashionable. However, linking the United States economic recovery with its entry into World War II is a prime example offlawed economic thinking.Supporters of the war benefits economy theory hold that a country at war is a country with a booming economy. Industry must produce weapons, supplies, food, and clothing for the troops. The increased production necessitates the hiring of more people, reducing unemployment. More employment means more money in the pockets of citizens, who are then likely to go out and spend that money, helping the retail sector of the economy. Retail shops experience an increase in business and may need to hire more workers, further reducing unemployment and adding to the economic momentum. While this scenario sounds good in theory, it does not accurately represent what truly happens in a war time economy.In reality, the government can fund a war in a combination of three ways. It can raise taxes, cut spending on other areas, or increase the national debt. Each of these strategies has a negative impact on the economy. An increase in taxes takes money out of an individuals hands, leading to a reduction in consumer spending.Clearly, there is no net benefit to the economy in that case. Cutting spending in other areas has its costs as well, even if they are not as obvious.Any reduction in government spending means the imposition of a greater burden on the benefactors of that government spending. Cutbacks in a particular program mean that the people who normally depend on that program now must spend more of their money to make up for the government cuts. This also takes money out of consumers hands and leaves the economy depressed. Of course, a government could go into debt during the war, but such a strategy simply means that at some point in the future, taxes must be increased or spending decreased. Plus, the interest on the debt must be paid as well.Q. The passage implies which of the following about a government that funds a war by increasing the national debt?

Top Courses for UPSCView all

Top Courses for UPSC

Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer?
Question Description
Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC. Download more important topics, notes, lectures and mock test series for UPSC Exam by signing up for free.
Here you can find the meaning of Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer?, a detailed solution for Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? has been provided alongside types of Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? theory, EduRev gives you an ample number of questions to practice Fixed exchange rate isa)is fixed by the businesses in an economyb)is fixed by the Government in an economyc)is fixed by the foreign exchange marketd)is fixed by the anybody in an economyCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice UPSC tests.
Explore Courses for UPSC exam

Top Courses for UPSC

Explore Courses
SaveJoin the Discussion on the App for FREE
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
10M+ students study on EduRev
Get App
© EduRev
Education Revolution
Signup to see your scores go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup