Question: 500 words. BOP Adjustments and exchange rates
Identify a country that has used a flexible exchange rate, and a country that has used a fixed exchange rate. Compare the theorized performance of the exchange rate systems and evaluate how these exchange rate systems worked in practice for the countries you selected.
In the previous module, we examined countries' balance of payments (BOP) along with other national accounts. In Module 7, we will learn what happens after a BOP goes into deficit and how various mechanisms, including those driven by exchange rates and exchange rate systems, play into the process of returning to balance and equilibrium. Then we will look at exchange rate systems more broadly and consider a worst-case scenario for BOP and exchange rate disequilibrium that has become an all-too-present possibility in today's global economy-currency crisis.