What kind of currency exchange system will prevent the balance of payments from being automatically balanced?
A) Monetary unions
B) Fixed exchange rate
C) Floating
D) Managed floating

Question

Quizplus · Accepted Answer

A fixed exchange rate system fixes the exchange rate of a currency to a stable commodity or currency. It prevents the balance of payments from being automatically balanced as the currency exchange rate is not free to adjust in response to changing market conditions. However, maintaining a fixed exchange rate system requires significant intervention from central banks and governments to regulate the currency exchange rate, which can be challenging and can result in unsustainable imbalances over time.

What Kind of Currency Exchange System Will Prevent the Balance