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Point out a demerit of fixed exchange rate
- a)Contradicts the objectives of free markets
- b)Ensures supply of the fixed exchange rate
- c)Promotes the objectives of free markets
- d)None
Correct answer is option 'A'. Can you explain this answer?
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Point out a demerit of fixed exchange ratea)Contradicts the objectives...
Demerit of Fixed Exchange Rate:
- Contradicts the objectives of free markets: Fixed exchange rates can hinder the efficient functioning of free markets by distorting the natural equilibrium between supply and demand for currencies. It restricts the ability of currencies to fluctuate in response to market forces, such as changes in interest rates, inflation, or trade imbalances. This can lead to misallocation of resources and hinder the adjustment process needed for economic stability.
In summary, the demerit of a fixed exchange rate is that it contradicts the principles of free markets by limiting the flexibility of currency values, which can hinder economic efficiency and stability.
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Point out a demerit of fixed exchange ratea)Contradicts the objectives...
Demerit of Fixed Exchange Rate:
Fixed exchange rates have several demerits, one of which is:
Contradicts the objectives of free markets:
- Fixed exchange rates contradict the principles of free markets, where prices are determined by supply and demand.
- By fixing the exchange rate, governments interfere with the natural movement of currency values, which can lead to distortions in the market.
- This can result in misallocation of resources, inefficiencies, and reduced economic growth.
- Additionally, fixed exchange rates can make a country's exports less competitive in the global market, as the currency is not allowed to adjust to its true value based on market forces.
Fixed exchange rates have several demerits, one of which is:
Contradicts the objectives of free markets:
- Fixed exchange rates contradict the principles of free markets, where prices are determined by supply and demand.
- By fixing the exchange rate, governments interfere with the natural movement of currency values, which can lead to distortions in the market.
- This can result in misallocation of resources, inefficiencies, and reduced economic growth.
- Additionally, fixed exchange rates can make a country's exports less competitive in the global market, as the currency is not allowed to adjust to its true value based on market forces.
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Point out a demerit of fixed exchange ratea)Contradicts the objectives of free marketsb)Ensures supply of the fixed exchange ratec)Promotes the objectives of free marketsd)NoneCorrect answer is option 'A'. Can you explain this answer?
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