An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

Question

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In a fixed exchange rate system, governments do need to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries. This is because the exchange rate is not determined by market forces but rather by government policy. Governments must actively buy or sell currencies to maintain the fixed exchange rate.

An Advantage of a Fixed Exchange Rate System Is That