As a consequence, if the exchange rate is flexible and not fixed, due to these large persistent deficits, the exchange rate or international value of their currencies will be continuously falling. Thus fixed exchange rate system prevents this continuous tendency for the depreciation of their currenci...
Any country that adopts a Pegged Exchange Rate system has to maintain a huge foreign exchange reserve. This is due to the constant open market operations that it has to undertake. It has to stabilize the value of its currency with regard to the value of the pegged foreign currency. Therefore...