Fixed exchange rates are volatile in the short run while ﬂexible exchange rates can lead to sudden and dramatic changes in the exchange price.

Question

Quizplus · Accepted Answer

The statement is the opposite of the reality. Fixed exchange rates provide stability in the short run, while flexible exchange rates can lead to volatility due to constant fluctuations in supply and demand. On the other hand, sudden and dramatic changes in the exchange price are more likely to happen with fixed exchange rates, as they require constant intervention from central banks to maintain the fixed rate.

Fixed Exchange Rates Are Volatile in the Short Run While