A fixed exchange rate system establishes a currency's value in relation to a major currency, a currency basket, or a commodity like gold.
A primary advantage of a fixed exchange rate is currency stability, essential for international trade and investment.
This stability fosters confidence in foreign exchange transactions, enabling better planning for businesses and investors.
Conversely, unpredictable exchange rate fluctuations, as mentioned in option 2, can introduce uncertainty into international trade.
Governments retain some monetary policy control under a fixed exchange rate system, invalidating option 3. Option 4 is also incorrect as a fixed exchange rate system aids inflation control through stable currency values.