Which of the following reasons differ from the others with regard to why governments want to intervene in the FX market? Choose all that apply.Question 6AnswerSelect one or more:a.A country is committed to a soft peg currency regime. Therefore, the government intervenes in the market to ensure that its currency fluctuates within the pre-determined boundaries.b.Countries that are heavily reliant on importing natural resources find that their currency is too weak to afford. Therefore, the governments revalue the currency in order to gain an advantageous purchasing power.c.A natural disaster causes a country’s currency to plunge in a short space of time. The government intervenes with the sole purpose of providing liquidity and reducing volatility.d.Countries that are heavily reliant on exporting natural resources find that their currency is too strong for other countries to afford. Therefore, the governments devalue the currency in line with the currencies of the countries which export similar resources.

Why and how do governments intervene in the markets?  10 marks

Country A noticed that its currency had slowly fallen out of sync with its economy. Due to an increase in exports, its currency’s value has been appreciating, making it difficult for other countries to afford the goods it produces. Which of the following institutions would intervene in such a situation?The World Trade OrganisationThe International Monetary FundThe Central Bank

Why do Countries issue its own National Currencies?Group of answer choicesTo benefit from Seigniorage.None of the available answers.To allow dollarisation.To prohibit Demonetisation.

Evaluate whether governments should intervene in markets to answer the, what, how or for whom questions.

Which of the following statements are false:I. In free float currency regimes central banks may intervene into FX markets only to add up its official foreign currency reserves and to trade foreign currency for servicing government debt;II. If the speculator believes that the currency is underpriced, short position will be taken in FX market;III. Arbitrageurs exploit market inefficiencies by implementing risky-free strategies;IV. Cross-border trade transactions take place only in USD and REM.Question 6Select one:a.All of the statements are falseb.All of the statement are truec.Only I, II and IV are falsed.Only I and IV are falsee.Only I and III are falsef.Only II, III and IV are falseg.Only I, II and III are falseh.Only III and IV are false