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A fixed exchange rate is a type of exchange rate system in which the value of one currency is fixed in relation to another currency, or a basket of currencies, by the intervention of the central bank. This means that the exchange rate between the two currencies will not fluctuate freely, but will instead be set by the central bank.
Key features of fixed exchange rate:
Examples of fixed exchange rate:
Advantages:
Disadvantages:
Overall, fixed exchange rate systems are used when a country wants to maintain price stability and control inflation.
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