A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called a sterilized foreign exchange intervention.
What is a foreign exchange intervention?
- Foreign exchange intervention is carried out by monetary authorities to influence exchange rates through the buying and selling of currencies on the foreign exchange market.
- Foreign exchange intervention aims to limit and stabilize extreme exchange rate volatility.
- Foreign exchange interventions, their trade leaves the domestic money supply unchanged. –
- The foreign exchange market is in equilibrium only when the expected return on domestic and foreign currency bonds is the same. The
- Intervention is a widespread and effective policy tool, demonstrating a success rate of over 80% under some criteria.
- This policy works well in terms of exchange rate smoothing and exchange rate stability in countries with narrow regimes.
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