Question : Which of the following is an example of a fixed exchange rate system?
Option 1: Bretton Woods system
Option 2: Managed float exchange rate
Option 3: Flexible exchange rate
Option 4: Currency board arrangement
Correct Answer:
Bretton Woods system
Solution : The correct answer is a) Bretton Woods system
The Bretton Woods system is an example of a fixed exchange rate system. It was established after World War II in 1944 and lasted until the early 1970s. Under the Bretton Woods system, participating countries fixed the value of their currencies to the U.S. dollar, and the U.S. dollar was pegged to gold at a fixed rate. This created a fixed exchange rate regime where exchange rates were maintained within a narrow range of fluctuations.
The Bretton Woods system was designed to promote stability in international trade and finance by providing a predictable exchange rate environment. However, the system faced challenges and eventually collapsed due to various factors, including imbalances in trade and financial flows, speculative attacks on currencies, and the inability of the U.S. to maintain the gold convertibility of the dollar.
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