A fixed rate can be expensive because it requires that a country keep large amounts of foreign currency on hand; usually a low-return investment.

Question

Quizplus · Accepted Answer

A fixed rate means that the country's central bank needs to maintain large reserves of foreign currency to support the fixed exchange rate. This can be expensive because keeping large amounts of foreign currency on hand is typically a low-return investment.

A Fixed Rate Can Be Expensive Because It Requires That