If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would: sell its own currency in exchange for foreign currency. follow a restrictive monetary policy. drive real rates of interest up. buy its own currency in exchange for foreign currency.

Question

Demarion Herman

Business

2 January, 14:45

If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would: sell its own currency in exchange for foreign currency. follow a restrictive monetary policy. drive real rates of interest up. buy its own currency in exchange for foreign currency.

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Mac · Answer 1

sell its own currency in exchange for foreign currency.

Explanation:

The price of any currency is determined by the supply and demand of that currency. it doesn't matter if a government tries to impose fixed exchange rates, if the market considers them to be unreal, a black market for currencies will occur, e. g. just look at Venezuela or Argentina right now, they have more than 11 currency exchange rates, some legal and some "illegal".

If the supply of any good, including currencies, increases, then the equilibrium price will decrease. If a central bank starts offering its own currency in exchange for other foreign currencies, then the price will decrease and the currency will depreciate. Right now this is happening all over the world, every foreign country is desperate to purchase US dollars, and this results in their foreign depreciating against the US dollar. This can be analysed as an increase in the demand for the US dollar or an increase in the supply of foreign currencies, they are basically the same.