The main reason central banks engage in foreign-exchange interventions is to
A)stabilize the domestic money supply.
B)stabilize domestic interest rates.
C)stabilize foreign interest rates.
D)stabilize the exchange rate.

Question

Quizplus · Accepted Answer

The main reason central banks engage in foreign-exchange interventions is to stabilize the exchange rate. Central banks can buy or sell foreign currency to increase or decrease the demand for it, thus influencing its exchange rate with the domestic currency. Stabilizing the exchange rate can benefit the economy by promoting trade and reducing volatility in financial markets.

The Main Reason Central Banks Engage in Foreign-Exchange Interventions Is