During the decades immediately following World War II, the advantages of fixed exchange rates proved less powerful than earlier presumed. Moreover, various theoretical developments argued for freely floating, rather than fixed or managed exchange rate systems, and better highlighted the following disadvantages of a fixed exchange rate. Merits and Demerits of Flexible Exchange Rate of Foreign Currency! Under the flexible exchange rate system, exchange rate between different currencies, like the prices of commodities are freely determined by market forces, that is, by demand and supply forces. Fixed exchange rate – pros and cons. There are advantages and disadvantages to using a fixed exchange rate system. Advantages. A government typically fixes its exchange rate because its currency’s value had been fluctuating too wildly. By pegging the currency to a more stable one, the government hopes to bring stability.