intervention in foreign exchange markets

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Action by central banks or other monetary authorities to influence an exchange rate. A currency will be sold to keep its price relative to other currencies down, or bought to keep its price up. Intervention in the foreign exchange market may be ‘unsterilized’, meaning that it is allowed to alter the domestic money supply, which rises when foreign exchange is bought and falls when foreign exchange is sold. This is distinguished from ‘sterilized’ intervention, where the central bank sells securities when it buys foreign currency, so as to keep the domestic money supply constant. See also sterilization.

Subjects: Economics.

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