This means of maintaining pegged exchange rates is hardly appealing

Recapitulation: Proponents of fixed exchange rates contend that such rates lessen the risks and

Uncertainties associated with international trade and finance. Fixed rates are thereby said to be conducive

To a large and expanding volume of mutually advantageous trade and financial transactions.

However, the viability of a fixed-rate system hinges upon two interrelated conditions: (1) the availability

Of adequate amounts of reserves and (2) the random occurrence of payments deficits and surpluses

which are of modest size. Large and persistent deficits may deplete a nation’s reserves. A nation

With inadequate reserves is confronted with less desirable options. On the one hand, it may have

To submit to painful and politically unpopular macroeconomic adjustments in the form of inflation

Or recession. On the other hand, that nation may have to resort to protectionist trade policies or

Exchange controls, both of which inhibit the volume of international trade and finance.

Conclusion: Exchange Rates. The Factors Influencing Their Value and the Balance of Payments

Flexible or floating exchange rates are determined by the demand for and supply of foreign

Currencies. Under floating rates a currency will depreciate or appreciate as a result of changes in