Two different changes in the foreign exchange market

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You are an analyst following a medium-sized country that has a fixed exchange rate of 5 dinars per U.S. dollar (with a band of 2 percent above and below this par value). During March of last year you know that the country's monetary authority intervened in the foreign exchange market by buying U.S. $2 billion.

During the next month (April) you know that the country's monetary authority intervened to sell U.S. $3 billion.

What are two different changes in the foreign exchange market that could explain the different interventions during these two months?

For each of the two changes, use a graph of the foreign exchange market to illustrate why the change resulted in the different interventions.

Reference no: EM131213602

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