A fixed exchange rate: I. leaves monetary policy available for domestic stabilization.
II) is less expensive to maintain than a floating exchange rate.

Question

Quizplus · Accepted Answer

A fixed exchange rate system typically requires the country to use its monetary policy to maintain the exchange rate, leaving less flexibility for domestic stabilization. Additionally, maintaining a fixed exchange rate can be expensive as it may require significant reserves to defend the pegged rate.

A Fixed Exchange Rate: I