How can a government manipulate floating exchange rate?

A government can manipulate floating rate by controlling the interest rate. To increase the exchange rate, ie the value of the currency, the government can increase its interest rate, which attracts foreign investors to save money in the country. To do so, the investors have to buy the country's currency, which increases the demand for the currency. As the demand curve of the currency shifts outwards, the price (the exchange rate) of the currency increases, hence a higher exchange rate. Vice versa for a lower exchange rate. 

ML
Answered by Matthew L. Economics tutor

2899 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

Using a diagram, explain why firms in monopolistic competition are neither allocatively nor productively efficient?


What is the difference between a COD and a COI?


How does an Expansionary Fiscal Policy affect the Real GDP of an Economy?


Analyse the impacts on the market if a subsidy was granted to cotton producers, and the discuss the consequences for stakeholders


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning