Question

Does the central bank of a country intervene in the foreign exchange market to influence it?

Answer 1

Yes, the central bank of a country does intervene in the foreign exchange market to influence it.

Purpose of Intervention:

1. To stabilise the exchange rate.
2. To control inflation caused by currency fluctuations.
3. To support export competitiveness.
4. To maintain foreign exchange reserves.
5. Reserve Bank of India (RBI)
6. Economic stability.

This intervention is a part of monetary policy to ensure a stable external environment.