The role of central banks is critical in managing monetary policy and exchange rates from "summary" of International Financial Management, Abridged Edition by Jeff Madura
Central banks play a crucial role in the management of monetary policy and exchange rates. They are responsible for making decisions that influence the supply of money in the economy, which in turn affects interest rates, inflation, and economic growth. By adjusting interest rates, central banks can control the cost of borrowing, which can stimulate or slow down economic activity. Central banks also play a key role in maintaining exchange rate stability. They can intervene in foreign exchange markets to influence the value of their currency relative to other currencies. By buying or selling their own currency, central banks can affect exchange rates and prevent excessive volatility that can disrupt international trade and investment. In addition to managing monetary policy and exchange rates, central banks serve as lenders of last resort to provide liquidity to financial institutions in times of crisis. This function helps to maintain stability in the financial system and prevent widespread economic disruptions.- Central banks play a critical role in ensuring the smooth functioning of the economy and financial markets. Their decisions have far-reaching implications for businesses, consumers, and investors, making them a key player in the global financial system. By carefully managing monetary policy and exchange rates, central banks can help to promote economic stability and growth.
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