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Foreign exchange policy

This is the policy that the central bank intervened in the foreign exchange
market by buying and selling foreign exchange on the market. For detail :
• When rates rise, the central bank will sell foreign exchange strongly to market,
that makes supply increased lead to the reduction of the tension on relationship
of supply and demand in the foreign yexchange market and make exchange rate
fall down
• When rates decline, the central bank will buy foreign exchange, that makes
demand for foreign exchange increased in the market and reduce tension in the
relationship of supply and demand on the foreign exchange market lead to the
slight increase of exchange rate
Another form of foreign exchange policy that is the establishment of the foreign
exchange stabilization fund . The Government will establish this fund in the
form of foreign currency , gold or releasing the short-term bonds , actively
buying and selling foreign currency to interfere with changing the relationship
of supply and demand of foreign exchange in the market , with the aim of
adjusting the exchange rate .
However, to implement this measure , the important issue is that central banks
have large foreign exchange reserve , if the balance of payments have a regular
shortage , it is not enough foreign exchange for this method




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