Question : What is the term used to describe a situation where a country's central bank actively buys or sells its own currency in the foreign exchange market to influence its value?
Option 1: Currency manipulation
Option 2: Currency pegging
Option 3: Currency arbitrage
Option 4: Currency intervention
Correct Answer: Currency intervention
Solution : The correct answer is d) Currency intervention
The term used to describe a situation where a country's central bank actively buys or sells its own currency in the foreign exchange market to influence its value is currency intervention. Currency intervention, also known as foreign exchange intervention or central bank intervention, refers to the actions taken by a central bank to influence the exchange rate of its currency.
Currency intervention can involve buying or selling the domestic currency in the foreign exchange market. If a central bank wants to weaken its currency, it may sell its own currency and buy foreign currencies, increasing the supply of the domestic currency in the market. Conversely, if a central bank wants to strengthen its currency, it may buy its own currency and sell foreign currencies, reducing the supply of the domestic currency.
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