Monetary Economics in Developing Countries Essay

M championtary Economics in Developing Countries - Essay ExampleThe two exchange govern systems have their emoluments and disadvantages in their application in a body politics economy. The advantages of the fixed exchange consider system include stimulating international trade as they offer much more stableness for both importers and exporters and as such, they do not have to worry about the effects of currency clutches and depreciation. Fixed exchange reckon systems are also said to have a bit of hold up over the speculative nature of importers and exporters and thus reduce to a certain extent speculative use in trade practices. This regime disadvantage can be depicted in the inefficiency of a countrys economy. This happens as a result of the governments artificial support of the exchange rate which means it does not change accordingly with changes in the reign economic conditions and thus whitethorn well-fixed out from the benefits that would be felt in the economy if the rate was adjusted according to the existing conditions. Furthermore, the addiction of interest rates on the exchange rate can lead to reduced economic reaping of a country in cases where they differ greatly with those being experienced in the market. In cases where one of the countries involved in the fixed exchange rate system agreement has a weaker economy, it may be dominated by the country with a stronger economy and at the same time undermine the regular market situation in the country with the weaker economy.Similarly, the flexible exchange rate regime has its advantages and disadvantages. The major advantage of this regime is its flexibility as it allows a countrys economy to adjust quickly to prevailing market conditions. This system also determines the interest rate in a country allowing for effective govern of the economy in order to create balance. Despite its advantages, the flexible exchange rate system may lead to volatility in the market as it does not encourage