Fixed exchange-rates provide exchange rate stability but they also prevent governments from using monetary policy to manage domestic economic activity.

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Fixed exchange rates are determined by a government or central bank and are typically set at a specific value in relation to another currency or a basket of currencies. The main advantage of fixed exchange rates is that they provide stability in the foreign exchange market, which can help promote international trade and investment. However, one of the drawbacks of fixed exchange rates is that they limit a government's ability to use monetary policy to manage domestic economic activity. Under a fixed exchange rate system, a country's central bank may be unable to adjust interest rates or manipulate the money supply to combat inflation or stimulate growth, as doing so would impact the value of its currency relative to the fixed exchange rate.

Fixed Exchange-Rates Provide Exchange Rate Stability but They Also Prevent