Impact of Foreign Exchange Rate Changes
Although spot foreign exchange (FX) rates at any moment are known and observable, one does not know ahead of time what future spot FX rates will be. Many try to predict and speculate, but there is always uncertainty about where FX rates will go in the future. Some FX rates are more volatile than others, depending on fundamental supply and demand and whether government policies tend to stabilize or destabilize. This chapter covers some issues related to FX volatility.
Central Banks and Balance of Payments
In addition to retail and interbank elements, central banks are important FX market participants. A central bank has an unlimited supply of its own economy’s currency. In addition, a central bank ...
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