Compare the impact of monetary policy under fixed exchange rates with those under flexible exchange rates.

Monetary policy, the process by which a country's central bank controls the money supply and interest rates, plays a significant role in shaping economic stability and growth. The effectiveness of monetary policy can be highly influenced by the type of exchange rate regime a country follows, whether it is fixed or flexible. Both fixed and flexible exchange rate systems have distinct implications for how monetary policy operates, affecting inflation, interest rates, economic growth, and international trade. Understanding these differences is crucial for evaluating the broader economic outcomes under each system.

### Fixed Exchange Rates

Under a fixed exchange rate system, a country’s currency is pegged to another currency (such as the U.S. dollar or euro) at a set rate. The central bank intervenes in the foreign exchange market to maintain this fixed exchange rate by buying or selling its currency. The primary objective of this system is to provide stability and reduce exchange rate risk, which is ________ _____ ______ __________ __________.
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