Exchange rate interventions occur when a government:
A) buys and sells its own currency on forex markets.
B) buys and sells other currencies on forex markets.
C) increases its interest rate.
D) buys and sells its own currency and other currencies on forex markets.

Question

Quizplus · Accepted Answer

Exchange rate interventions involve buying or selling currencies on forex markets. Governments can intervene by buying or selling their own currency to influence its value or buying/selling other currencies to affect their exchange rates with their own currency. Therefore, the best choice is D as it includes both options. Increasing interest rates is also a tool that governments can use to influence exchange rates, but it is not considered a direct exchange rate intervention.

Exchange Rate Interventions Occur When a Government