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Foreign exchange intervention
Very "influential" participants of Forex market are and state institutions – Central Bank and Ministry of Finance. The first regulates the monetary policy of the state, the second budget. In fact, these organizations form the basis of the financial system.
Sometimes in order to "pohlestyvanie" chosen economic strategy and the corresponding regulation of the national currency the Central banks of some the countries-participants of international currency market make so-called foreign exchange intervention. In other words, among the available channels, the Central Bank using its own assets, conducting a massive buy or sell any currency in very noticeable even for everliving the Forex market volumes.
If a country cares about the strengthening of the exchange rate of the national currency and reduce inflation, the Central Bank starts massive buying of its currency in exchange for its available "foreign" assets and "stateless" (e.g., precious metals).
If the economy shows a "stagnant" signs and it is necessary to stimulate production and export, then you should try to reduce the overvaluation of the national currency, throwing on the market a significant amount, which should reduce the demand for that currency.
Sometimes, the Central Bank of several countries can carry out such actions are agreed upon. For example, such actions took place after the devastating earthquake in Japan in 2011.
However, often the official leaders of the Central Bank's hint at possible intervention and it is limited. Such verbal intervention is able to push the market in Central Bank direction.
It is clear that the majority of professional market participants foreign exchange interventions do not cause enthusiasm, because the schedule of such events does not agree with technical analysis and fundamentals. Intervention is, of course, increase the risk of loss even experienced traders.
There are direct and indirect intervention. The first holds the Central Bank directly in their own name, the second is more common – according to his instructions, commercial banks perform. You can also mark an intervention in the market and against it. It's simple – in the first case, the intervention "helps" the dominant market trend, and the second lets him. In the case of intervention on the market of the assigned tasks, to achieve easier. Even the Central Banks, despite their enormous resources, does not always reach the goals that they pursue by carrying out currency interventions.
For the success of foreign exchange intervention is necessary the simultaneous observance of certain conditions:
• Significant deviation of the fundamentals of the economy from the "due";
• The confidence of the majority of the market participants to the policy pursued by the Central Bank;
• The presence of the disposal of the Central Bank of a considerable mass of foreign exchange reserves.
Some banks pre-announced the intervention, but usually such information is the most important financial and state secret. Most often, the interventions in recent years, "sin" the Bank of Japan.
Periodically and the Bank of Russia conducts interventions generally respecting a so-called currency (or the currency) corridor, sets the boundaries of the exchange rate of the ruble against the dollar and the Euro.
Economists are still not agreed about the meaning of the practice of foreign exchange interventions. Some consider them unnecessary, others are quite effective, But regardless of their opinions of foreign-exchange intervention is firmly entrenched in the practice of the Central banks of many countries.
|Category: Forex | Added by: (29.10.2017)