Answer to Question #93746 in Macroeconomics for Lesego

Question

If the SARB buys the dollars in the South African foreign exchange market, the South African rand will

[1] not be affected
[2] appreciate
[3] depreciate

Answer 1

The answer is: [3] depreciate

Currency intervention - the action of the country's central bank in the foreign exchange market, aimed at maintaining or weakening the national currency, during which a large volume of currency is bought or sold at a time or in a limited period of time. The task of currency intervention is to maintain the exchange rate in the interests of the state.

The central bank uses certain schemes:

1. Sell more foreign currency and buy all the national currency. Thus, they can significantly reduce the demand for foreign currency.(national currency appreciation)
2. Sell the national currency and buy foreign currency (depreciation of the national currency).