A foreign exchange intervention is:
A) synonymous with a fixed exchange rate.
B) the use of public statements by government officials to influence inflation expectations.
C) only used in crisis situations.
D) the buying/selling of currencies to affect supply or demand which impacts the exchange rate.

Question

Quizplus · Accepted Answer

Foreign exchange intervention refers to the buying and selling of currencies by central banks or monetary authorities to influence supply and demand in the foreign exchange market, which ultimately impacts the exchange rate. This tool is often used by governments to stabilize their currency's value and maintain a certain level of exchange rate. It is used regularly and not just reserved for crisis situations. It is different from a fixed exchange rate, where the value of a currency is pegged to a certain level and does not fluctuate based on market forces. Public statements by government officials to influence inflation expectations, on the other hand, are part of a broader set of monetary policy tools used by central banks, and not specifically related to foreign exchange intervention.

A Foreign Exchange Intervention Is