Fxed vs. flexible exchange rates

Reference no: EM13721107

While in class we focused on fixed vs. flexible exchange rates, many nations have intermediate cases. For example, some nations have band, where rates are fixed plus or minus some percent. For example, a nation may fix its rates at 10 pesos per dollar plus or minus 4 percent, thus fixing between 9.6 and 10.4 pesos per dollar. In other cases the fixed rate has a crawl built into it: We fix at 10 pesos to the dollar, depreciating 1 percent per month. Other nations combine the two: a band each month, with built-in depreciation over time. What are the advantages and disadvantages of these hybrid systems compared to pure fixed rates?

Reference no: EM13721107

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