Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter Open Economy Macroeconomics. This page offers a step-by-step solution to the specific question from Exercise 1, Question 19:
Discuss some of the exchange rate arrangements that countries have entered into to bring about stability in their external accounts.
. With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.Discuss some of the exchange rate arrangements that countries have entered into to bring about stability in their external accounts.
To combine the two extreme positions, `fixed' and 'flexible', the following exchange rate arrangements are used by governments to bring stability in external accounts:
1. Wider Bands
A system that allows adjustment in fixed exchange rate is referred to as wider bands. It permits only 10% variation between the currencies of any two countries. For example, a country can improve its balance of payments (BOP) deficit by depreciating its currency, which leads to increase in demand for domestic goods due to increase in purchasing power of other currencies. This further leads to the increase in exports, hence improving the BOP.
2. Crawling Peg
Crawling peg system allows continuous and regular adjustments in the exchange rate. Only 1% of variation is allowed at a time.
3. Managed Floating
Managed floating is a scheme under which the government can intervene to vary the exchange rate when the situation demands so. There is no specific limit of variation as in crawling peg and wider bands.
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Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 19: Discuss some of the exchange rate arrangements that countries have entered into to bring about stabi....
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