What does foreign exchange adjustment mean?

2023-07-14
Summary:

Learn how currency fluctuations affect financial statements and transactions. Understand more about forex and its implications on business.

Foreign exchange adjustment refers to the action taken by the central bank to adjust or intervene in the exchange rate of a currency in the foreign exchange market. It refers to the central bank influencing market supply and demand by buying and selling foreign exchange to adjust exchange rate levels or prevent excessive currency fluctuations.

foreign exchange adjustment

The purpose of foreign exchange adjustment can be to stabilize the exchange rate of currencies, in order to maintain economic stability and competitiveness. The central bank may use currency intervention to prevent the currency from depreciating or appreciating too much, so as to maintain the balance of international trade.


Firstly, the central bank can adjust foreign exchange by intervening in exchange rates. When a country's currency exchange rate experiences significant fluctuations or does not meet government expectations, the central bank can take intervention measures, such as purchasing or selling currency in the foreign exchange market, to influence the trend of the exchange rate. If the central bank believes that the domestic currency is too strong, it may take measures to sell the domestic currency to increase foreign exchange supply and lower the exchange rate. On the contrary, if the central bank believes that the domestic currency is too weak, it may take measures to purchase the domestic currency to reduce foreign exchange supply and increase the exchange rate.


Secondly, the central bank can adjust foreign exchange through Currency intervention. The central bank can directly intervene in the foreign exchange market by purchasing or selling foreign exchange in order to affect the supply and demand relationship in the market. By increasing or reducing foreign exchange supply, the central bank can adjust the exchange rate level in the market to achieve its goal of regulating the economy.


In addition, the central bank can also carry out foreign exchange adjustments by implementing monetary policy. Monetary policy is a means for the central bank to affect the economy by adjusting the Money supply and interest rate level. The central bank can attract or suppress foreign investment inflows by adjusting interest rate levels, thereby affecting the supply and demand relationship and exchange rate level in the foreign exchange market.


In addition, foreign exchange adjustments can also be used to maintain financial stability and suppress excessive volatility. For example, when a country's currency experiences a large-scale depreciation, the central bank can purchase its own currency, increase demand, and thus raise the exchange rate. On the contrary, when the currency excessively appreciates, the central bank can sell its own currency, reduce its supply, and stabilize the exchange rate level.


Foreign exchange adjustment is an important tool of the central bank, often used to intervene in the market and affect the value of currency. It can be implemented through direct intervention in the market or through interest rate policies. The implementation of foreign exchange adjustments usually requires the central bank to have sufficient foreign exchange reserves and the ability to stabilize the market.


In short, foreign exchange adjustment is an important means for the central bank to adjust the exchange rate of currencies through market intervention in order to maintain economic stability and competitiveness. It has a significant impact on international trade, financial stability, and economic development.


The scope of adjusting foreign exchange is:

1: Various retained foreign exchange reserves;

2: Foreign exchange owned by foreign-invested enterprises;

3: Foreign exchange donated by overseas Chinese and Hong Kong Macao contract holders;

4: Foreign currency and foreign exchange deposits held by individual residents;

5: Other foreign exchanges approved by the State Administration of Foreign Exchange

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