Foreign Exchange Intervention - Bank of Sierra Leone

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5. REASONS FOR FOREIGN EXCHANGE INTERVENTION It is to make some contribution towards the following: Reduce the extent of overshooting. Reduce the duration of overshooting. To bring about a little more short-term stability when markets threaten to overreact to news. 8
5 (Cont’d.) The latter is amenable to intervention but the first and second are not. This is so because intervention cannot be used to correct a monetary policy imbalance, or to resist changing fundamentals such as world growth or commodity prices. However it can be used in the following circumstances: ‣ A medium term movement based on fundamentals was going too far, i.e. overshooting; or ‣ A short term overreaction to a piece of news that is intrinsically difficult to interpret. In these circumstances intervention is said to bring about stability in exchange rates. 9
Page 1 and 2: 1. THE EFFECTIVENESS OF FOREIGN EXC
Page 3 and 4: 2. FOREIGN EXCHANGE INTERVENTION De
Page 5 and 6: 3. RELEVANCE OF FOREIGN EXCHANGE RA
Page 7: 4. (Cont’d.) DEVELOPMENTS OF FORE
Page 11 and 12: 6. (Cont’d.) WHY DO POLICYMAKERS
Page 13 and 14: THEORETICAL FRAMEWORK OF FX 8. INTE
Page 15 and 16: 8. (Cont’d.) THEORETICAL FRAMEWOR
Page 17 and 18: 10. 1. The Starting Point Review of
Page 19 and 20: 10. (Cont’d.) What if the monetar
Page 21 and 22: 11. IS FOREIGN EXCHANGE INTERVENTIO
Page 23 and 24: 12. THE EFFECTIVENESS OF FOREIGN EX
Page 25 and 26: 13.(Cont’d.) Secondly, using mark

Foreign Exchange Intervention - Bank of Sierra Leone

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