suppose government official in a small open economy decided they wanted their currency to weaken in order to boost exports. what kind of foreign exchange market intervention would they have to make to cause their currency to depreciate? what would happen to domestic interest rates in that country if its central bank doesn't take any action to offset the impact on interest rates of the foreign exchange intervention.

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06-12-2022
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suppose government official in a small open economy decided they wanted their currency to weaken in order to boost exports. what kind of foreign exchange market intervention would they have to make to cause their currency to depreciate? what would happen to domestic interest rates in that country if its central bank doesn't take any action to offset the impact on interest rates of the foreign exchange intervention.

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rafikiedu08 rafikiedu08 · Answer 1 · 2022-12-13T04:04:00+01:00

Foreign exchange market intervention would have to make to cause their currency to depreciate by buying and selling currencies in the foreign exchange market.

They would boost their money supply and devalue their currency if they purchased foreign reserves. Interest rates would decline as a result of the expanded money supply. When a country changes its exchange rate, the value of its foreign reserves, expressed in local currency, also changes; this shift in the ladder may result in a gain or loss for the central bank in domestic currency.

By buying and selling currencies on the foreign exchange market, monetary authorities intervene in the foreign exchange market to modify exchange rates. Intervention in the foreign exchange market aims to stabilize and restrain excessive volatility in exchange rates.

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