Practice Merits And Demerits Of Flexible And Fixed Exchange Rate Systems (6.2.2.3)

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6 sample questions

Question 1.
What is a fixed exchange rate?
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Think about stability and predictability.
Question 2.
Name one disadvantage of flexible exchange rates.
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Consider the effect on international trade.
3Question 3.
What is a significant drawback of fixed exchange rates?
- Stability
- Speculative attacks
- Market predictability
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Look at what can undermine a fixed system.
4Question 4.
Flexible exchange rates provide which of the following benefits?
- True
- False
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Think about how the market reacts to economic changes.
Question 5.
Consider a country with a fixed exchange rate. Describe a scenario where a speculative attack might lead to a currency crisis. What steps can the government take to mitigate this risk?
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Consider market psychology and government interventions.
Question 6.
Analyze how a sudden shift to a flexible exchange rate system could impact a country's trade balance. What factors should policymakers consider in this transition?
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Think about short-term vs. long-term effects.

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