Why do central banks intervene in foreign exchange markets

Reference no: EM131303893

1. Why do central banks intervene in foreign exchange markets?

2. How does an increase in U.S. interest rates relative to European interest rates affect the demand for U.S. dollars and the supply of U.S. dollars?

3. To raise the foreign exchange rate, would a central bank buy or sell foreign assets? What would be the effect on the monetary base? What would be the effect on domestic interest rates?

Reference no: EM131303893

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