The fixed excahnge rate system refers to a scheme in which the exchange rate for currency is determined by the government. The basic aim of assuming this scheme is to assure stability in foreign trade and capital move.

To achieve stability, the government attempts to purchase foreign currency when the exchange rate becomes weaker and sell foreign currency when the pace of exchange gets stronger. Under this scheme, each country keeps the value of its currency fixed in terms of some External standard.

A fixed exchange rate is a regime forced by a government or central bank which ties the authority exchange rate of the country's currency with the currency of another nation or the gold cost. A fixed exchange rate system has the point of keeping the worth of a currency inside a thin band.

A fixed exchange rate system is a monetary arrangement where the value of a country's currency is pegged, or fixed, to the value of another major currency or a basket of currencies. The goal is to maintain a stable and predictable exchange rate, reducing fluctuations in currency values. Central banks or monetary authorities actively intervene in the foreign exchange market to ensure that their currency's value remains within a predetermined band or at a specific rate against the chosen reference currency.

This system contrasts with a floating exchange rate, where currency values are determined by market forces. Fixed exchange rate systems offer stability, facilitating international trade and investment, as businesses can plan with greater certainty. However, maintaining the peg requires continuous management, and countries may face challenges if economic conditions diverge significantly from those of the reference currency, potentially leading to speculative attacks or the need for adjustments in the fixed rate.