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Advantages of using fixed exchange rates

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Advantages of using fixed exchange rates includes;

  • It may keep inflation under control because the prices of imported goods will remain stable as long as the exchange rate is fixed
  • It stabilizes the export proceeds and therefore it may stimulate exports for the period in which it is fixed.
  • It enables the government to meet its development plans whose budgets are set in local currencies but may be financed by foreign loans and aid
  • Long term investment plans can be worked out with substantial accuracy and may minimize budget deficits with their negative effects.
  • A fixed exchange rate will assure foreign investors of a stable return on their investment which may induce foreign investors, thus increasing the inflow of foreign exchange to the country

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