Proponents of a fixed exchange rate system maintain that it is superior to a floating exchange rate system because
A) the balance of payments adjusts continuously to exchange rate movements.
B) governments can establish independent monetary and fiscal policies.
C) disorderly exchange rate movements can disrupt trade and investment patterns.
D) floating exchange rates operate under simplified institutional arrangements.

Question

Quizplus · Accepted Answer

Proponents of a fixed exchange rate system argue that disorderly exchange rate movements can disrupt trade and investment patterns, which is the main advantage of a fixed exchange rate system. Options A and B do not support the superiority of fixed exchange rate over floating exchange rate systems. Option D doesn't directly relate to the debate on the superiority of exchange rate systems.

Proponents of a Fixed Exchange Rate System Maintain That It