A central bank can attempt to manipulate the exchange rate by

Question

Quizplus · Accepted Answer

Central banks can influence exchange rates by adjusting interest rates. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. The relationship between interest rates and exchange rates is direct and strong, unlike tax rates or buying exports or imports, which do not directly allow central banks to manipulate exchange rates.

A Central Bank Can Attempt to Manipulate the Exchange Rate