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Investment markets: April 2014 question 3

S

ST6_aspirant

Member
Hi all,

the question is how can the government influence currency?

One of the approach in the suggested answer is the government could buy (or sell) holding in another currency.
... causing the exchange rate to depreciate (or appreciate).

The brackets seem to suggest that buying a holding will cause the exchange rate to depreciate.

Can you please explain this with the help of an example?

Thanks!
 
So if you're the UK government and you're interested in sterling exchange rates, then you could buy euros. This would increase the demand for euros and so increase the value of euros relative to pounds. This represents a depreciation of the pound.
 
This is interesting as there are people who're profiting from this very fact in the Forex markets.
Look into Steve Mauro,and how he teaches his expensive course called the Market Maker Method.And yes,Central Bankers are manipulating the movement of the currencies as we speak,that is,they are moving the market as they wish.This has never been a better time to study this subject(ST6) IMO because there are a lot of break thoroughs,and research that we can partake in as Actuarial students.Particularly the options market in forex............This is going to be an interesting one as soon as i make it to this paper.
 
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