Question

Answer as a paragraph please

What are some of the measures -and their limitations- that a central bank can take to defend the currency of that country that is coming under sustained downward pressure in the foreign exchange markets?

Answer 1

Following are the measures that Central Bank can take when its currency is under downward pressure in foreign exchange market:

1 Central Bank will increase the the tariffs on import. This will lead to reductions in the import. As a result there would be less demand of the foreign currency which will results in increase the the value of home currency.

2 Central Bank would try to provide the subsidy for the export which will stimulus the export of nation .so as that exports will increase the demand of domestic currency would increase in international market and as a result the currency would experience increase in its value.