A system of fixed exchange rates is more likely to give rise to exchange controls than is a system of flexible exchange rates.

Question

Quizplus · Accepted Answer

In a system of fixed exchange rates, governments may need to impose exchange controls to maintain the pegged exchange rate. This is because if the value of a country's currency becomes overvalued or undervalued, it could lead to an imbalance in trade and capital flows. In contrast, in a system of flexible exchange rates, market forces determine the value of a currency, and governments do not need to impose exchange controls as frequently.

A System of Fixed Exchange Rates Is More Likely to Give