April 8, 2024

Relative Merits of Fixed and Floating Exchange Rate in Trade, Globalization, and Investment

Merits of Fixed and Floating Exchange Rate

This is an essay assignment on the subject of globalization, Trade, and Investment. In this essay, we will debate the relative merits of fixed and floating exchange rate regimes. With the help of globalization concepts, fiscal policy, and international trade practices, we will discuss the pros and cons of fixed and floating exchange rates.


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Relative Merits of Fixed and Floating Exchange Rate Regimes


According to Hill, 2007, the exchange floating rate was formalized 56 years ago. It provides autonomy for the policy of monetary policy. It allows the government to enhance the money supply when it is essential. The other element of the regime is it has automatic adjustments for the balance of trading.


According to Anderson, 2019, the following exchange rate is an international aggregate that is studied in the finance course. It mainly follows the exchange system of the policy questions. Different countries have experimented theory. The exchangeable floating rate may regime the following arguments for the obligations. The exchange parity can restore the control of the money for the governments. The huge rate of unemployment in the country can even increase the monetary set. This problem helps to make a decision.

This exchangeable floating rate seeks the rating system in two days. The following regime controlling has the monetary discipline to maintain the fixed rate to break the devaluation and that can even improve the trade environment. In the floating system, the inflation of the domestic part has not any impact on a business. “international cost competitiveness”, the exchange system has the investment and trading by the depreciation of the currencies. It can even lead to instability in the economy that would be desirable for sales and revenues.


Also Read Understanding Purchasing Power Parity and Usefulness in Exchange Rate Determination


According to Dür, 2020, Congress was interested in promoting a stable economy. The rate of currency exchange is the main component of economic growth. The following reports help to explain the exchange rates and floating rates may be changed. The following exchange rates are determined. It has the outlines of advantages and disadvantages. The floating exchange rates are determined. It mainly gives values the disadvantages and advantages. The market mainly determines the floating rates. In fixed regimes, the following central system is the main target for the monetary place. The following theory was such an arrangement for the central bank which is unable to use for the monetary places. It is a limited leeway of other goals (Erixon, 2018). The currency boards are extreme examples of the rate regime where the central bank is stripped and the capability of it can even convert into any amount and it changes from the domestic currency to foreign currency and it has a predetermined price.

Exchangeable rate systems

Figure 1: Exchangeable rate systems (Source: Frieden, 2018)


The following economic advantage is like exchange rates and it leaves the monetary authorities to get the internal roles. It has full employment and price stability to exchange the rate amounts. It has economic advantages also. It also promotes international investments and it is an essential growth source. It helps to develop the countries in a particular way. The floating merits can be compared to the fixed rates (Flew, 2020).


The economy of the different kinds of countries is reliant on neighboring countries and it has a valuable way of macroeconomic stability. The advantage of politics is the main currency board of the country. The country has the fiscal authorities and also the monetary authorities to make it harder for the finance budget by printing money and it makes it harder to get the finance budget by printing money.



The experience has happened in Mexico, Brazil, and Turkey. The experience suggests that the exchange rate is the main currency of the crisis. The factor is considered as exchange literature in the following part (Frieden, 2018). International mobility plays a huge role than past experiences. The floating exchange rate can be better by promoting the following stability. It is like proponents and the reports track the legislation and it may be updated as warranted.


Floating rate

The floating exchange is determined by the demand and supply of the market. The following floating rates are termed “self-correcting”. The floating rates can be corrected regularly in the market. The model is called a simplified model. The value of the floating rate is decreased and it makes the imported goods which must be expensive and simulated the services. It makes regularity in the markets. Subsequently, the currency cannot be fixed or floating.


In the following regime, it pressures the influence changes at the exchange rate. The local currency reflects the value against the currency in the market. In the floating regime, it is essential to ensure inflation and stability and it must interfere with the floating regime.



Floating exchange rate

The exchange rates help to grow the economies which are the main monetary places. The fixed rates exchange the stability of the different economies. The floating exchange rate works better as it is already stable and it has a direct monetary policy.

so, the floating exchange rate is better.

The fixed exchange regimes are the following system for the currency fixed government. The rate should be fixed in terms of a floating exchange rate. The floating exchange rate is taken by the market that mainly supplies foreign currency.

The economic community of Europe has exchanged the mechanism of the rate which was established in 1979. These currencies were continued by the non-EU countries. The country has created a single currency. The euro was replaced by the national currencies and the fixed currencies have immutability.


Also read Fiscal Policy and Fiscal Measures Deployed by Government Globally


floating exchange rate

Figure 2: floating exchange rate (Source: Jha and Gozgor, 2019)


The currency is fixed by some countries. It can fix their basket of currency. The implementation of the theory is possible and the values should be changed regularly. The people have implemented the dirty float. There the currency value depends on the circumstances. Some countries allow pure floats. Subsequently, the different kinds of experiments have been mixed up. The exchangeable floating rates are operated regularly. Then floating rates should be changed by investors and governments (Islam et al. 2021). It helps to adjust the volatility. The fixed rates are like salvation for a country. It reduces inflation in the country.


The system is operated regularly in different kinds of circumstances. It mainly recommends getting the system in all circumstances. The exchangeable fixed rate system is committed by monetary autonomy. It is essential to maintain the monetary policy and it leads to the inflation rate (Jha and Gozgor, 2019). The devaluations must be removed or ignore the pressures of the fixed rate. The different types of methods enhance the credibility of the Board of Currency. In many countries, for at least one time, the exchangeable fixed rate helps to lessen the pressure.



The countries are committed by the different systems in place. The following system sometimes leads to collapse. It can even dismantle the following board in the next ten years. The economic pressure is increasing and returning to the national currencies. The Bretton Woods system was there for almost thirty years and it collapsed totally. It helps to fix the rating system over a long period.


fixed interest rate

Figure 3: fixed interest rate (Source: Khan et al. 2019)


The exchangeable rate system was colored past. The floating rates should be adopted for the system to collapse. The following collapse has the equilibrium exchangeable rate. The main advantage of the floating rates can be autonomy for the monetary policy and they mainly afford the central bank. Monetary policy should be discredited as a useful mechanism to guide the national economy (Izurieta et al. 2018). The bank can even insert the money into the following system and the economic growth falls. It must be quicker than huge growth leads to tendencies. The monetary policy should be huger than the fiscal policy. The policy is quicker to control the economy.


Prudent monetary and fiscal policy

Monetary autonomy has negative traits for the countries and it is a fixed rate of inflation and it must be a negative trait to control the domestic economies. It is the primary key to the success which has the floating rates on the prudent monetary system. I can even fix the rates which must be more prudent. The floating rates are a blessing for different kinds of countries. It is an immense policy of monetary.


Evolution of Currency Exchange – Fixed and Floating Exchange Rates


The goods were sold for other goods. The practice was evolved by the mental standards which must be prevailed. The exchange rate has a fixed system. The following textbooks adjusted the fixed exchange rate system and have a few experiences with floating rates.

The mentioned experience must have been exchanged 49 years ago. Bretton Woods has fixed the system but this has never materialized and the countries embarked on different types of floating systems.

According to Ha et al. 2020, between 1870 and 1914, there was the exchange rate of global. This exchange rate has been implemented by the power of the four major industrial countries Britain, France, Germany, and the United States. All currencies are linked to gold. This means that the local currency value was fixed based on the ounce goal rates that are set are the exchange rate. At that time this was known as the global standard of global. This standard allows for the mobility of unrestricted capital as well as the stability of global trade and currency. With the start of World War 2, there is seen the abandoned standard of global. In the year 1944 with the effort of global stability and increasing trade globally. There is the establishment of some kind of basic rules and the governing the regulation in the “international exchange”. This is when the establishment of the “international monetary system” and the “international monetary fund” happened (Khan et al. 2019).


The reasons for currency are linked with stability. It can even develop the nations and the country decides to peg the currency to build the developing nations. The following investor knows the value of the investment and the people do not worry about the fluctuations. It can even direct several kinds of financial crises. It is hard to maintain the huge distance; it was in Mexico 28 years ago. It was also seen in Russia 26 years ago. It mainly attempts the high value of the local currency and it results in an overvalued currency. The following investor can even scramble the money and it can be converted into a local currency (Lund et al. 2019). The foreign reserve supplies the local currency which is devalued more than the peg. The government has forced the Peso. It was devalued by 35%. It can even allow the currency in 1997. The depreciation of the Thai results in the currency of Asia and can lose value more than the dollar.

Fixed rates mainly work well for economic growth. There is not any kind of monetary policy which will be stable. The “fixed exchange rate” helps bring stability to the economy country and helps attract the investment of the foreign (Witt, 2019). The other rate which is the “floating exchange rate” works better for countries that already have stable and effective policies regarding monetary. 


The country has been forced by the currencies and it required the form of economic and it implements its currency and economic reform is also required and transparency is also implemented the economic form and transparency is huge. This effort strengthens the financial issues. The government has chosen the floating and the government reassesses the peg periodically and it is controlled by the avoid a panic market.

The exchangeable fixed rate should be changed in demand and it is a flexible exchange with changes and the market foreign exchange is also in demand. The exchangeable fixed rates take into the monetary discipline. Subsequently, a lack of connection is built between the exchange rate and balance trading. By monetary discipline, the exchangeable fixed rate is sure that the government will not enhance the inflationary rates (Palley, 2018). The exchange rate regimes the possible speculation. Then, the fixed rate regimes the certainty of the monetary system. It reduces the volatility of the exchange rates. The trade has the balances of the adjustments. The critical questions can even change the rate and trade balance. The exchangeable floating rates have different kinds of elements.


The policy and automatic trade have adjustments. In a different term, It is a fixed rate regime for the autonomy policy of the country. It is a fixed rate system, and the country’s ability helps to enhance the money supply contract. It needs to maintain the parity of the exchange rate. The exchange rate can correct the deficit trade by the country’s exports and the term of the import is also more expensive. The following exchange rate can even correct the deficit by making the exports of the country. The exchangeable fixed rates regime is the modeled line of the system. The different kinds of exchange might be endured and it is one kind of stability that facilitates huge growth in the international market.

Every system has its advantages which must be suitable for different kinds of situations. People consider entering into international business. Their concern of them is about risk. In an exchange rate system, the following rate always changes (Paul, 2019). The exchangeable floating rate system is there. It can even change the as always. It is tough to enter the international market system. It determines the possible changes. The international business should be accurately held. It helps to cease the risk of the exports and also an investment. It may make the business unprofitable. The fixed exchange system should be better. The breakdown of the Bretton wood system the exchangeable fixed system must be better. From this point of view, the countries are constant and it has an exchangeable rate system. The exchange rate system can’t work for good. It is like small countries and it has the fixed exchange rate which will not work forever. There may be small countries that are developing fixed exchange rates as they could submit foreign exchange by dealing with emergencies and it needs the fixed exchange system. It maintains the development and it is a fixed exchange system that can even interfere with the leading group the whole market relies on the import risks and it also ports the international investments. It is a profitable business for business practices. It may even make profitable businesses and unprofitable practices.


On the other hand, the exchangeable fixed rate ratio is for constant countries. The fixed exchange system does not have a positive effect on the stability of the exchange rate. The rating system limits the negative effect. It can even limit the speculation stability exchange rate. From this point of view, The exchangeable fixed rate system must be better. On the contrary, the breakdown effect must be for the better wood system (Schilirò, 2020). The history of pure fixed exchange can work forever and it must be for small countries. It develops the exchangeable fixed rate as they can even submit them. The exchange rate system does not work if it is not purely fixed. It maintains a stable development environment. The exchangeable fixed rate system means too much interference by the government of the leading group. The following market relies on the people of the group and it demands and supplies the whole market. It mainly balances the people of businesses and it hathe huge interest in that area. The exchangeable rate system refers to the exchange of currencies. The following exchange rate system facilitates the different types of countries as commodities. It should be used as the currency of the home country.


Reference list

Anderson, J.E., Larch, M. and Yotov, Y.V., 2019. Trade and investment in the global economy: A multi-country dynamic analysis. European Economic Review, 120, p.103311.

Dür, A., Eckhardt, J. and Poletti, A., 2020. Global value chains, the anti-globalization backlash, and EU trade policy: A research agenda. Journal of European Public Policy, 27(6), pp.944-956.

Erixon, F., 2018. The economic benefits of globalization for business and consumers. European Centre for International Political Economy.

Flew, T., 2020. Globalization, neo-globalization, and post-globalization: The challenge of populism and the return of the national. Global Media and Communication, 16(1), pp.19-39.

Frieden, J., 2018. The backlash against globalization and the future of the international economic order. The crisis of globalization: democracy, capitalism, and inequality in the twenty-first century, 43.

Ha, J., Stocker, M.M. and Yilmazkuday, H., 2020. Inflation and exchange rate pass-through. Journal of International Money and Finance, 105, p.102187.

Islam, M., Khan, M.K., Tareque, M., Jehan, N. and Dagar, V., 2021. Impact of globalization, foreign direct investment, and energy consumption on CO2 emissions in Bangladesh: Does institutional quality matter? Environmental Science and Pollution Research, 28(35), pp.48851-48871.

Izurieta, A., Kohler, P. and Pizarro, J., 2018. Financialization, Trade, and Investment Agreements: Through the Looking Glass or the Realities of Income Distribution and Government Policy? UNCTAD & Global Development and Environment Institute Working Paper No. 03, 18.

Jha, P. and Gozgor, G., 2019. Globalization and taxation: Theory and evidence. European Journal of Political Economy, 59, pp.296-315.

Khan, M.K., Teng, J.Z., Khan, M.I. and Khan, M.O., 2019. Impact of globalization, economic factors and energy consumption on CO2 emissions in Pakistan. Science of the total environment, 688, pp.424-436.

Lund, S., Manyika, J., Woetzel, J., Bughin, J., and Krishnan, M., 2019. Globalization in transition: The future of trade and value chains.

Palley, T.I., 2018. Three globalizations, not two: Rethinking the history and economics of trade and globalization. European Journal of Economics and Economic Policies: Intervention, 15(2), pp.174-192.

Paul, T.V., 2019. When the balance of power meets globalization: China, India, and the small states of South Asia. Politics, 39(1), pp.50-63.

Schilirò, D., 2020. Towards digital globalization and the COVID-19 challenge.

Witt, M.A., 2019. China’s challenge: Geopolitics, de-globalization, and the future of Chinese business. Management and Organization Review, 15(4), pp.687-704.



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