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What is the difference between fixed and flexible exchange rate?
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Answer Posted / Satendra Singh
A fixed exchange rate system requires a government or central bank to maintain a stable exchange rate through intervention in foreign exchange markets. Under this system, currency fluctuations are limited, but governments may lose autonomy over monetary policy as they must adjust other economic policies to maintain the fixed rate. In contrast, a flexible exchange rate system allows currencies to float and adjust based on market forces. This flexibility permits greater autonomy over monetary policy, but may result in currency fluctuations that can impact trade and investment.
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