Question

Monitoring Central Bank Intervention
1)How can your business be affected if the Fed attempts to strengthen the dollar in the for-eign exchange market?
2)If the Fed decides to weaken the dollar, how will your business be affected?
3)How can indirect central bank intervention affect your business even if there is no impact on exchange rates?
Accessing Central Bank Information
Go to the Web site link for the central bank in your target country. Determine whether this central bank intervenes to control its currency in the foreign exchange market. Monitoring Exchange Rate Trends. Please show all work.

Answer 1

Answer 1) The impact of strengthen the dollar in foreign exchange market are:

• Reduce the amount of export due to high comparative cost
• Increase the cost of fund
• impact on the bilateral cash flow
• Impact of bill payable as well as bills receivables, disturb the accounting equilibrium

Answer 2) The impact of weaken the dollar in foreign exchange market are:

• Reduce the amount of import due to high comparative cost
• Increase in export due to low comparative cost
• Increase the cost of fund
• impact on the bilateral cash flow
• Impact of bill payable as well as bills receivables, disturb the accounting equilibrium
• Increase net cost in cash of foreign currency loan

Answer 3) Central bank intervention affect the business without any direct impact in foreign exchange are:

• Key Interest rate cut in country may have direct impact on business ,mainly on the cost of fund .
• Any intervention in form of change in key interest rate and liquidity management in market impact the business
• These intervention impact the flow of fund in country , such uneven flow of fund will impact the exchange rate in longer run.