Foreign exchange market intervention is most effective when:
A)each country's political leaders agree to cooperate fully with the process.
B)leading economists in each country concur that intervention is needed.
C)permanent differences between the free market exchange rate and the fixed exchange rate are expected.
D)temporary differences between the free market exchange rate and the fixed exchange rate are expected.
E)all the countries restrict the international movement of goods and services.

Question

Quizplus · Accepted Answer

Foreign exchange market intervention is most effective when there are temporary differences between the free market exchange rate and the fixed exchange rate. In this situation, intervention can help stabilize the exchange rate and prevent sudden and large fluctuations. However, if there are permanent differences between the free market rate and the fixed rate, intervention may not be effective in the long run. Cooperation among political leaders and agreement among leading economists can be helpful but are not necessary for intervention to be effective. Restrictions on the international movement of goods and services are not directly related to the effectiveness of intervention.

Foreign Exchange Market Intervention Is Most Effective When