The major advantage of ________________ is that movements in the exchange rate automatically take care of the surpluses and deficits in the BoP.

flexible exchange rates

The correct answer is option 2: flexible exchange rates

The flexible exchange rate system gives the government more flexibility and they do not need to maintain large stocks of foreign exchange reserves. The major advantage of flexible exchange rates is that movements in the exchange rate automatically take care of the surpluses and deficits in the BoP. Also, countries gain independence in conducting their monetary policies, since they do not have to intervene to maintain exchange rate which are automatically taken care of by the market.