Which of the following is not the advantage of a fixed exchange rate regime ?
(A) An increase in speculation on exchange rate movements.
(B) Enhances international trade and investment.
(C) Avoids currency fluctuations and eliminates exchange rate risks.
(D) Enhances the credibil

Question

Which of the following is not the advantage of a fixed exchange rate regime ?
(A) An increase in speculation on exchange rate movements.
(B) Enhances international trade and investment.
(C) Avoids currency fluctuations and eliminates exchange rate risks.
(D) Enhances the credibility of the country's monetary policy.

Accepted Answer

> [!TLDR]
> A fixed exchange rate's advantages are stability and credibility; an **increase in speculation** is a *disadvantage*, so option (A) is the odd one out.

### Step 1 — List the genuine advantages of a fixed regime
- Avoids currency fluctuations and eliminates exchange-rate risk (option C).
- Enhances international trade and investment by giving certainty (option B).
- Enhances the credibility of the country's monetary policy (option D).

### Step 2 — Test option (A)
A stable, credibly-defended peg *reduces* the scope for day-to-day speculation on exchange-rate movements. So "an increase in speculation" runs against the purpose of a fixed regime — it is not an advantage.

### Step 3 — Select the non-advantage
Options (B), (C) and (D) are all recognised advantages; only **(A)** describes a negative outcome, making it the correct pick for "NOT an advantage." …

Fixed vs Floating Exchange Rate Regimes

Fixed (pegged) exchange rate

Floating (flexible) exchange rate

Step 1 — List the genuine advantages of a fixed regime

Step 2 — Test option (A)

Step 3 — Select the non-advantage

Step 1 — List the genuine advantages of a fixed regime

Step 2 — Test option (A)

Step 3 — Select the non-advantage

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