Asked by Christy Zavala on Jul 13, 2024
Verified
A government may be able to reduce the international value of its currency by
A) selling its currency in the foreign exchange market.
B) buying its currency in the foreign exchange market.
C) selling foreign currencies in the foreign exchange market.
D) increasing its domestic interest rates.
International Value
The worth or significance of goods, services, assets, or currencies when evaluated on a global scale or in more than one country.
Foreign Exchange Market
An international exchange system where national currencies are swapped against each other.
Selling Currency
The act of exchanging one's own country's currency for another currency, which can influence exchange rates and is a key aspect of foreign exchange markets.
- Grasp the approaches utilized by central banks for impacting exchange rates in a controlled float environment.
- Evaluate the role economic policies play in altering global capital transactions and their consequences on exchange rates.
Verified Answer
SS
Sumia Sami1Jul 14, 2024
Final Answer :
A
Explanation :
When a government sells its currency in the foreign exchange market, the supply of its currency in the market increases. This, in turn, reduces the international value of the currency as there is more supply than demand for it. This is often done to make exports cheaper and more competitive in international markets. Buying the currency would have the opposite effect, increasing its value in the international market. Selling foreign currencies would not directly impact the value of the domestic currency. Increasing domestic interest rates may attract foreign investment, but it would not necessarily reduce the international value of the currency.
Learning Objectives
- Grasp the approaches utilized by central banks for impacting exchange rates in a controlled float environment.
- Evaluate the role economic policies play in altering global capital transactions and their consequences on exchange rates.