Government impact on exchange rates.

COLLAPSE Overall Rating: 12345Your Rating: 12345 "Government Impact on Exchange Rates" Please respond to the following: From the first case study, imagine a situation where the Thai government has decided to peg the Thai Baht to the U.S. dollar. Predict

Government impact on exchange rates is a complex issue and depends largely on the policies implemented by each government. Generally, governments have three main tools at their disposal to influence exchange rates: fiscal policy, monetary policy and intervention. Through fiscal policy (taxes, spending etc.), governments can create an environment that makes their country’s currency more attractive in foreign markets; through monetary policy (interest rate changes), they can make their currency more or less valuable relative to other currencies; and through intervention (buying/selling of their own currency) they can directly manipulate exchange rates. Ultimately, how much of an effect these policies have depends on the specific circumstances of each economy – some countries may be more successful than others in influencing exchange rates.