Question

Assume that the United States, Mexico and Canada entered into an agreement to adopt a fixed rate exchange system. What are the likely consequences of a fixed rate system for the flow of trade and investment among the three countries?

Answer 1

Solution:-

It will be a big step if Canada, US, and Mexico choose a fixed exchange rate system process. For international business, a kind of certainty comes into picture related to payments between these countries which eventually increase trade. Moreover Fluctuating exchange rates will affect the process of economic growth in these countries.

Similarly, it will be good for the investment and flow of trade as in any long-term invest­ments, investors need and demands fixed exchange rate system. Investors or traders don't like to invest in an economy which follows fluctuating rate system.

That is why the IMF also adopted the fixed exchange rate system.