To avoid the imposition of capital controls, a government wishing to keep its exchange rate at a certain level, may rely on:
A) forbidding all sales or purchases of foreign currency.
B) asking the large banks to keep the prices at a certain level.
C) asking for loans from the International Monetary Fund (IMF).
D) intervention in the foreign exchange market to raise or lower the exchange rate.

Question

Quizplus · Accepted Answer

Intervention in the foreign exchange market is a common method used by central banks to maintain the exchange rate at a desired level. By buying or selling their own currency in the foreign exchange market, a government can increase or decrease the demand for their currency, which can then impact the exchange rate. This can be a more flexible option than capital controls, which can restrict trade and investment and harm economic growth.

To Avoid the Imposition of Capital Controls, a Government Wishing