When discussing the relative pros and cons of a fixed exchange rate system compared to a floating exchange rate system, it is imperative to understand the meaning of both systems. “A fixed exchange rate is when a country ties the value of its currency to some other widely-used commodity or currency” (Amadeo, 2020). With international trade, the currency most used around the world is the United States Dollar. Today, most fixed exchange rates are attached to the U.S. dollar. Countries that trade a lot with others may also fix their currency with those they trade with the most. With a fixed exchange rate, the government completely or partially sets that rate.
Now let’s look at the other end of the spectrum, the floating exchange rate system. With a floating exchange rate system, the system is tied to the supply and demand, relative to other currencies (the open market) (Mitchell, 2020). With a floating exchange rate, it is impossible for other countries and individuals to manipulate the currency price since the government and central bank diligently work on keeping the price advantageous for international trade.
When having a multinational business, you have to decide where you are going to operate primarily and where you want your plants and sales to generate from. Both a fixed rate exchange system and a floating exchange rate system have pros and cons for a multinational business, and it is important to review both sides and deciding what is considered important criteria when picking where and how you conduct business. With a fixed rate system, since the currency is tied to other countries that they trade with and the government sets the rate, the rules and regulations in place can benefit the country. With a fixed exchange rate, you can always exchange your money with one currency to another currency, one for one. That is another benefit with having a fixed exchange rate. There are also benefits with the floating exchange rate system. Since the system is tied to other currencies, the countries that they trade with could theoretically benefit the currency for both countries, especially if they have a lot of goods and products going back and forth. Without the ability to influence the currency, is keeps things honest for the businesses that operate in that country.
When deciding between fixed exchange rate and floating, one may be interested in the history between the two and how it began. Knowing the history can influence the past as so many things are cyclical. In the past, currencies were fixed to an ounce of gold. In 1944, with the Bretton Woods agreement, countries around the world agreed to peg its currency to the United States dollar. Flash forward about thirty years, President Richard Nixon decided to remove the dollar from the gold standard in order to end the recession. After this happened, many countries around the world still kept their currency pegged to the united states dollar. There can be something said about using a system that has been around and trusted for so many years with so many different countries around the world.
Plagiarism Free Papers
All our papers are original and written from scratch. We will email you a plagiarism report alongside your completed paper once done.
All papers are submitted ahead of time. We do this to allow you time to point out any area you would need revision on, and help you for free.
A title page preceeds all your paper content. Here, you put all your personal information and this we give out for free.
Without a reference/bibliography page, any academic paper is incomplete and doesnt qualify for grading. We also offer this for free.
Originality & Security
At Homework Sharks, we take confidentiality seriously and all your personal information is stored safely and do not share it with third parties for any reasons whatsoever. Our work is original and we send plagiarism reports alongside every paper.
24/7 Customer Support
Our agents are online 24/7. Feel free to contact us through email or talk to our live agents.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
We work around the clock to see best customer experience.
Our prces are pocket friendly and you can do partial payments. When that is not enough, we have a free enquiry service.
Admission help & Client-Writer Contact
When you need to elaborate something further to your writer, we provide that button.
We take deadlines seriously and our papers are submitted ahead of time. We are happy to assist you in case of any adjustments needed.
Your feedback, good or bad is of great concern to us and we take it very seriously. We are, therefore, constantly adjusting our policies to ensure best customer/writer experience.