ABSTRACT
In general, a central banks scope to influence the exchange rate is restricted in two respects. On the one hand, there are domestic institutional constraints. Usually a central bank is not fully autonomous but under the control of the government or finance ministry of its country and in one way or the other expected to follow their instructions. On the other hand, there are international constraints. Nowadays the economies of major industrial countries are highly interdependent and economic policy decisions in one country influence the outcome in all others.
