A fixed exchange rate is a currency system where a country's currency value is tied or pegged to another major currency, like the U.S. dollar or Euro. This means that the government or central bank maintains the currency's value within a narrow band, making it stable and predictable for international trade and investment. To maintain a fixed exchange rate, the government may intervene in the foreign exchange market by buying or selling its currency. This helps prevent large fluctuations in value, providing certainty for businesses and investors. However, it can also limit a country's ability to respond to economic changes.