The debate concerning the fixed versus flexible exchange rates is not complete unless the arguments that the economists have advanced in support of and against the system of flexible or fluctuating rates of exchange are considered. Arguments for Flexible Exchange Rates: The main arguments in favour of the flexible exchange rates are as below: (i) Simple Mechanism: The system of [...]
Let us make an in-depth study of the advantages and disadvantages of the flexible exchange rate system. Advantages: (i) Automatic Adjustment in BOP: The chief merit of the freely fluctuating exchange rate is that the BOP disequilibrium gets corrected automatically with the change in exchange rate. If a BOP deficit arises, there would be an excess supply of home currency [...]
Here we detail about the merits and demerits of flexible exchange rates system. Merits of Flexible Exchange Rates System: Under the flexible exchange rate system, exchange rate between different currencies, like the prices of commodities are freely determined by market forces, that is, by demand and supply forces. With the change in economic conditions underlying demand and supply, the exchange [...]