Which of the following is the MERIT of fixed exchange rate system?

1. It ensures stability in the exchange rate
2. It does not encourage venture capital
3. The government has to maintain 100% gold reserves
4. It prevents speculation in the foreign market

1 and 4

Fixed exchange rate system refers to the system in which the rate of exchange for the currency is fixed by the government itself.

The following are the merits of the same:

1. It ensures stability in the market and prevents speculation
2. Coordination of macro policies become convenient

The following are the demerits for the same:

1. The country has to obtain 100% gold reserves
2. There is a possibility of under valuation or over valuation of the currency due to government interference