Exchange Rates >< (1 Viewer)

[Darawr]

could anyone help me out and name the cost and benifits of floating exchange rates and fixxed exchange rate. MUCH THANKS

 

[veloc1ty]

http://www.boredofstudies.org/wiki/...nge_Rates_(Fixed,_Flexible_and_Managed_Rates)

 

[Darawr]

lol all that info was in my tim riley 2008 book =/

 

[veloc1ty]

So what's the problem? It gives you the costs and benefits of each...

 

[onlinenooby]

Ill briefly list them out if you need more explination then say so.


Benefit of Free floating
- reflects the dollars underlying trade and investment position
- automatically balances the BOP i.e. acts as an automatic stabiliser for E/G

Cost
-creates uncertainity and volatitly resulting in unpredictability with future movements
-encourges speculation
-possibility of overseas induced inflation.

Benefit of Fixed;
- allows certainity in transactions with o/s partners
- keeps low inflation

Disadvantage;
- strain on foreign reserves
- speculators engage in riskless speculation
- defending excahnge rate may offset objectives of montary policy