Question

Which of the following is a motivation for a government or central bank to manipulate domestic currency valuation?
O fight inflation
O slow to rapid economic growth
O spur to slow economic growth

Answer 1

Common justifications given by central banks for maintaining low currency values include slow economic development and ongoing unemployment issues.

What encourages central banks to trade in the foreign exchange market?

In order to increase their own reserves or supply them to the nation's banks, central banks, particularly those in developing nations, intervene in the foreign exchange market. Stabilizing the exchange rate is frequently their goal.

How could a central bank directly intervene to lower the value of its own currency?

The value of the domestic currency will be directly decreased, or depreciated, if the central bank sells domestic money for a foreign currency on the Forex market.

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