Advantages of a fixed exchange rate include
A)reduction in exchange rate risk for businesses.
B)reduction in transactions costs.
C)reduction in trading frictions.
D)all of the options

Question

Quizplus · Accepted Answer

A fixed exchange rate system helps businesses to reduce exchange rate risk because they can rely on a stable exchange rate. Moreover, as the exchange rate remains unchanged in the short run, it reduces the transactions cost and trading frictions. Therefore, all the given options are the advantages of a fixed exchange rate.

Advantages of a Fixed Exchange Rate Include