List Four Advantages Of Fixed Exchange Rates
The Central Bank handles the UK exchange market on behalf of the central government. The England bank or the central bank as it is better known, periodically invests in the foreign market to increase the value of the exchange. Now, there is a speculation of investing in the market on fixed market rates. |
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One of the most important advantages of fixed exchange rates is that it helps in the future planning of the amount of investment and the amount of business that a company can undertake. With a fixed rate, the company does not risk loosing too much money as it reduces the speculation in the exchange.
Another benefit of having a fixed exchange rate is that it helps traders of various kinds of goods to fix up a steady rate and thus reduce the risk in investment. This encourages the traders to invest in the market.
Also a fixed exchange rate enables the government to exempt themselves from following the inflammation policies and thereby sustaining the competition in the market. This takes care of various problems that are associated with the balance of payments.
A fixed exchange rate moreover, reduces speculation which is a vital risk in running a stable market. Reduction in speculation does away the risk of destabilizing the economy.
So these are the various benefits that a fixed exchange rate in the market achieves but like all the things there is another side to the coin in having a fixed rate. This includes a huge amount of investment that is required to keep upto the market rate and the loss of freedom in deciding the integral policies.
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For more than a decade now the global economy stakeholders decided to halt the system of fixed (adjustable) foreign exchange rate that formed the core of Bretton Woods system. Later on it was made legal by the Second Amendment to the Articles of Agreement of the IMF in 1978. This allowed member countries to accept and adopt foreign exchange rate arrangements most suitable to them. 
