All exchange rate regimes must deal with the trade-off between rules and discretion.

Question

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All exchange rate regimes require a balance between following set rules and allowing for flexibility and discretion in response to changing economic conditions. The choice between fixed or floating exchange rate regimes, for example, represents a trade-off between the stability and predictability of a fixed system and the potential for flexibility and adjustment in a floating system. Similarly, policymakers must balance the use of predetermined rules and targets with the need to exercise judgment and discretion in response to unexpected events or shifting economic realities.

All Exchange Rate Regimes Must Deal with the Trade-Off Between