You have been tasked with briefing the firm's finance team on an aspect of international finance and...

Question

You have been tasked with briefing the firm's finance team on an aspect of international finance and then leading a discussion with the team. This briefing is particularly important because of the global financial crisis that began in 2007.
The briefing is needed to provide more foundation for the finance team because the team is not well versed in the international aspects of finance.
Provide a briefing that addresses the following:

Describewhen and why central banks buy either their own currency or the currency of another nation in an effort to control exchange rates.
Whatdid the central banks do to stabilize the financial systems in 2007–2009?
In an effort to stabilize the financial system, how much money, in U.S. dollar equivalent and as a percentage of the country's GDP, did the European Central Bank, Bank of England, Bank of China, and Federal Reserve put into the economy in 2008 and 2009?
How well did each country's efforts work at stabilizing the economy?
What appears to be the major constraint that the central banks used to determine the limits of the monetary injections into the economy? Did the United States use the same or different criteria?
To what extent to do you agree or disagree with the actions of the central banks during this time?

David · Accepted Answer

Central Bank is a bank which manages states’ currency and helps in managing monetary policy 
of the country. Central Bank basically works on three main tools which are related to changes 
made in discount rate, matters regarding to open market operations and lastly necessary changes 
which are made in reserve supplies (Ehrmann, 2010). The main function of central bank is to 
expand the money supply by investing in bonds, by reducing the discount rate, by managing 
reserves supplies. Central bank sometimes makes the agreement to contract money supply by 
selling their bonds which they have bought, by raising the discount rate and by increasing 
reserves supplies.  
Central Banks sometimes buy their own money to control the money supply of the state. In case 
of some central banks they have the necessity to trade foreign exchange which has been earned 
from exports with the local currency of their state. The rate that has been used for exchange is 
then used to buy local currency which is authorized by the bank. This rule is generally applied in 
countries in which money cannot be converted or can be little converted but not fully. The 
receiver of the local currency is than given the right to manage their funds, but for some time the 
fund has to stay with the central bank or the fund can be used according to rules and guidelines. 
In some rare cases the power to use foreign exchange is kept limited.

You have been tasked with briefing the firm's finance team on an aspect of international finance and then leading a discussion with the team. This briefing is particularly important because of the...

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