Central governments sometimes indirectly intervene in foreign exchange markets by affecting foreign exchange rates through raising or lowering interest rates.

Question

Quizplus · Accepted Answer

Central governments can indirectly influence exchange rates by adjusting interest rates. For example, when a government increases interest rates, it can attract foreign investors who seek higher returns on their investments. This increased demand for the country's currency can lead to an increase in its exchange rate. Conversely, lowering interest rates can decrease the value of a country's currency.

Central Governments Sometimes Indirectly Intervene in Foreign Exchange Markets by Affecting