How governments can intervene to influence the exchange rate
Governments can push their currency's value up or down using several tools. These include changing interest rates, spending foreign currency reserves, and setting rules on money flows.
Real World
In 2015, the Swiss National Bank abruptly abandoned its peg of 1.20 CHF per euro, having spent billions in foreign currency reserves buying euros to keep the franc weak — when it stopped, the franc surged 30% in minutes.
Exam Focus
For 'evaluate' questions, always weigh the cost of holding reserves against the benefit of rate stability.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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