In a fixed exchange rate system, governments are responsible for holding their exchange rate nearly constant.

Question

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In a fixed exchange rate system, governments commit to maintain a fixed exchange rate between their currency and another currency (e.g. the US dollar). This means that they have to intervene in foreign exchange markets to buy or sell their currency if necessary to keep its value stable. Therefore, they are responsible for holding their exchange rate nearly constant.

In a Fixed Exchange Rate System, Governments Are Responsible for Holding