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Combating Intervention Risk

In: Central Bank Reserves and Sovereign Wealth Management

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  • Stephen John Fisher

Abstract

Central Banks (CB) hold foreign reserves to intervene in the currency market. The trigger for currency intervention depends on many factors that cannot be predicted — trade flows, domestic shocks, foreign shocks, speculative attacks and financial crises, as well as the monetary and fiscal policies of domestic and foreign governments. ‘Intervention risk’ — the sudden need to buy or sell foreign exchange to defend the currency — is the major risk facing a CB’s reserve holdings.

Suggested Citation

  • Stephen John Fisher, 2010. "Combating Intervention Risk," Palgrave Macmillan Books, in: Arjan B. Berkelaar & Joachim Coche & Ken Nyholm (ed.), Central Bank Reserves and Sovereign Wealth Management, chapter 5, pages 140-161, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-25081-9_5
    DOI: 10.1057/9780230250819_5
    as

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