What are the advantages of a flexible exchange rate over a fixed exchange rate? In particular, be sure to explain how a country keeps an exchange rate fixed

In a fixed exchange rate regime, the currency's value is pegged with another currency or a basket of currencies, or even gold at times. For example, the currency of Canada could be fixed with that of the US to avoid fluctuations in the exchange rate.

There are a lot of advantages in flexible exchange rates including the possibility of economic development, absorbing the demand shocks and reacting accordingly, promoting increased international trade are just to name a few. When we fix a currency, these positives cannot be achieved. For instance, to counter the demand shock in future the central bank is under pressure to hold on to more reserve currency. And this further limits these banks to tweak the interest rates which are fundamental for economic growth.

So, after all these negative effects why would a country peg its currency? A fixed exchange rate system is useful for smaller economies wherein they peg their currency with prevalent currencies like the USD. This is done to stabilize the currency irrespective of market conditions thereby increasing the ease of trade between those 2 countries.