It is also known as the pegged exchange rate. It actually takes place when the government purposely fixed the country exchange rate value against other currency. For example 1.2 EUR is equal to 1 USD, regardless the demand and supply of both currency. he purpose of a fixed exchange rate system is to maintain a country's currency value within a very narrow band.

For both exporters and importers, fixed exchange rate is good, because it provide certainty to them, also as for the government, this can help the government in maintaining low inflation, which in the long run should keep interest rates down and stimulate increased trade and investment.