Central bank interventions and foreign exchange rate volatility 01291 Essay

Central swan disturbances and foreign exchange value unpredictability 01291 - leaven ExampleSome researchers are on the opinion that such intervention policies are ineffective and whitethorn lead to increase the degree of foreign exchange volatility whereas other academic intellectuals sighted that of import bank volatility can become the potential reason behind reducing exchange rate volatility. Another consensus views central bank intervention as ineffective and a waste of taxpayers money. In this theme the effect of central bank intervention, exchange rate regimes and currency risk hedging decisions will be analysed in order to evaluate whether the central bank intervention impacts positively on the level of volatility of foreign exchange rate or not.Central bank intervention has always been a polemic policy among all researchers across world. According to a report from Wall Street Journal, central bank intervention is not only futile to manage exchange rate but also uns table as it may increase volatility of exchange rate. However, it is also evident that in some cases such intervention has a positive or limited effect of such volatility as surface (Suranovic, 2004). During the period of Bretton Woods Exchange Rate System, central bank intervention had become necessary to each one time the exchange rates surpasses their parity bands. In 1973, after the dissolution of this exchange rate system, the intervention policy became country specific. In 1977, International Monetary Fund (IMF) formulated three distinct guidelines for its genus Phallus countries to bring uniformity in the intervention practices. First, countries were not authorized to manipulate exchange rate for adjusting their relief of Payment (BOP) or for gaining any discriminatory competitive advantages. Secondly, countries were legitimated to intervene only for countering the disorderly market conditions and finally, countries were tell to always take into account the exchange rate interests of other