Demonstrate using supply and demand curves, why Argentina had to give up its fixed exchange rate in...

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Demonstrate using supply and demand curves, why Argentina had to give up its fixed exchange rate in 2001

David · Accepted Answer

If two countries maintain a fixed exchange rate system then potential investors 
move funds back and forth between the countries freely to maintain an equal 
interest rate between the two. For example, if country A and country B maintain 
the fixed exchange rate and central bank of country A wanted to raise interest 
rates, then the central bank of country B would have to raise interest rates by the 
same amount even when it is not in the best interests of country B.

Demonstrate using supply and demand curves, why Argentina had to give up its fixed exchange rate in 2001

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