If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the domestic currency falls, sparking a capital outflow. What action would its central bank take to defend its fixed rate against the dollar?   Question 23 options:   It would build up its international reserve (selling the domestic currency)   It would dip into its international reserve (buying the domestic currency)   It would raise domestic interest rates   It would lower domestic interest rates

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.