Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.
Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 3BIC
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Question
Which of the following is not an argument for central bank intervention?
Exchange rates are highly volatile.
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Exchange rate fluctuations have an adverse effect on the macroeconomy.
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The market knows better than economic policy makers what the appropriate level of the exchange rate is.
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Central bank intervention can smooth out fluctuations in exchange rates.
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