Many developed economies operate within a floating exchange-rate regime. Where a country has a floating exchange...

Many developed economies operate within a floating exchange-rate regime. Where a country has a
floating exchange rate, identify and discuss the circumstances in which the central bank of that country
might conduct transactions in the FX market.

Solutions

Expert Solution

Floating exchange rate regimes are where the currency is set free and managed by the demand and supply forces in the forex markets. When there is an excessive depreciation or appreciation of currency the central bank may intervene the forex market to control the money supply and control the currency value.

One of The countries following floating rate are Euro area with respect to non -EU countries. Most mature economies and some emerging ones also adopted this such as USA and India.

In contrast China and Hong Kong adopts Fixed exchange rate regime.

Central bank intervention in market occurs due to sharp increase or decline in the currency's value. Central bank's intervention would either boost or decrease the currency's value and restore its original value to help the importers and exporters, other transactions are also facilitated by this.

But sometimes the intervention of central bank can prove wrong when the economy gets too much dependent on its intervention.

jeff jeffy answered 1 year ago

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