How can a government manipulate floating exchange rate?

A government can manipulate floating rate by controlling the interest rate. To increase the exchange rate, ie the value of the currency, the government can increase its interest rate, which attracts foreign investors to save money in the country. To do so, the investors have to buy the country's currency, which increases the demand for the currency. As the demand curve of the currency shifts outwards, the price (the exchange rate) of the currency increases, hence a higher exchange rate. Vice versa for a lower exchange rate. 

ML
Answered by Matthew L. Economics tutor

3011 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

What are the characteristics of a perfectly competitive market structure?


Explain one reason why governments impose indirect taxes.


What is structural unemployment and how can government intervention affect the level of structural unemployment?


Explain how a profit can be earned in the short run but not the long run in a perfectly competitive market.


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning