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Some countries partially or totally manage their exchange rates, rather than allow their currency to openly...

Some countries partially or totally manage their exchange rates, rather than allow their currency to openly fluctuate in response to market forces. Why would a country do that?

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Answer #1

A country manager it's exchange rate in order to protect the the devaluation of it's currency with regards to other currency.that can be done through many type of interventions which are either sterlized or operational in nature.

Monetary policies interventions by the central government are very common and they are focused at buying or selling of the domestic currencies in the exchange rate market to impact the exchange rate to higher extent.

They also buy or sell the currency instill a kind of faith in its stock market ,as high volatility in currency market can spark fear in share market as well leading investors to pull out money from the domestic country.

So it is highly common by the central banks to manage their currency into the range they always want to. they can do it through buying and selling lot of foreign currency bonds as well as domestic currency.

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