Adopting a fixed exchange rate promotes trade if the regime is:
A) semi-floating.
B) indirectly pegged.
C) directly floating.
D) directly pegged.

Question

Quizplus · Accepted Answer

A directly pegged exchange rate means that the value of the currency is fixed to another currency or a basket of currencies. This promotes trade as it provides certainty and stability in exchange rates, making it easier for businesses to plan and execute international transactions. Semi-floating and directly floating exchange rates can be subject to volatility and uncertainty, which can create challenges for trade. Indirectly pegged exchange rates are harder to monitor and can be subject to sudden changes. Therefore, adopting a directly pegged exchange rate is the best option for promoting trade.

Adopting a Fixed Exchange Rate Promotes Trade If the Regime