Impact of Fixed Conversion Rates on International Trade
Before 1999, a German company importing goods from Spain faced financial uncertainty because the value of the German currency could change relative to the Spanish currency between the time an order was placed and when payment was due. When a new common currency was introduced, the conversion rates were permanently set at 1.96 German marks and 166.4 Spanish pesetas per unit of the new currency. Explain how this change would have affected the financial risk for the German importing company.
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