Currency Intervention

This is a situation where the Central bank of any country makes a major purchase or sale of the national currency in the Forex market (see) in order to stabilise its position. The amount of these transactions amounts to millions and billions of dollars. Sometimes, intervention is called an "infusion" of money into the market. Such an operation is always unexpected and sudden, so the graph looks like a huge vertical jump upwards or downwards of the price of a currency pair - quotes (see). It depends on the aim of the Central bank, whether it wants to increase or decrease the currency rate of its country. If on the market there is currently an excessive size of the national currency (the supply is too large and the demand too small), the Central bank buys these surpluses. In this case, on the graph you can see a sharp upwards jump of quotes. Such actions are always justified, because if a lot of currency is present but nobody buys it, this can lead to lower prices, if not to the depreciation of a currency. The situation also happens in reverse, when the Central bank sells domestic currency to lower its rate. Then, on the graph you can see a sharp jump downwards. Typically, this is done to create a more attractive environment for exporters. Moreover, exactly the same actions are taken by banks that buy large amounts for their currency in euro or dollars. So they replenish gold reserves of the country. It is important to understand that it is necessary to stabilise exchange rates as it is directly related to the stability of the economic situation in the country. Also note that there is a real and fictitious currency intervention. The difference between them is that if a real bank really goes on the market and produces, for example, the purchase of currency, it then publishes a report on its actions. Fictitious is just a rumour that your bank will hold a similar intervention. Then, all traders on the market start to quickly open transactions, for example to buy or earn as much as possible on sharp jump rates. However, the bank does not perform any action and so a strong rise or fall in prices occurs due to the fact that a huge number of people made a large volume of deals in one direction.

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