The effect of an imbalance in the BOP is the same for countries on a fixed exchange rate regime as for those on a floating exchange rate regime.

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime, governments or central banks must intervene in the foreign exchange market to maintain the exchange rate, which can lead to changes in the country's reserves. In a floating exchange rate regime, the exchange rate adjusts automatically to correct any imbalance in the balance of payments (BOP), without the need for direct intervention.

The Effect of an Imbalance in the BOP Is the Same