If a developing country has sufficient reserves, the buying and selling of foreign currency by the central bank is:
A)likely to have roughly the same impact on the exchange rate as in developed countries.
B)likely to have a much greater impact on the exchange rate than in developed countries.
C)likely to have a much smaller impact on the exchange rate than in developed countries.
D)completely ineffective on the exchange rate.

Question

Quizplus · Accepted Answer

The central bank's intervention in the foreign exchange market, through buying and selling foreign currency, tends to have a much greater impact on the exchange rate in developing countries compared to developed countries. This is because developing countries often have smaller, less liquid markets, and interventions by the central bank can significantly influence supply and demand dynamics, thereby affecting exchange rates more substantially.

If a Developing Country Has Sufficient Reserves, the Buying and Selling