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International Economics 17th Edition

International Economics (17th Edition)

Book Edition17th Edition
Author(s)Carbaugh
ISBN9781337558938
PublisherCengage
SubjectEconomics
Inflation Rates, Purchasing Power Parity
International Trade Application
Forecasting Foreign Exchange Rates
International Trade Application
Chapter 12, Inflation Rates, Purchasing Power Parity, International Trade Application, Exercise 01
Page 420

What do you think? What penalties should be placed on banks that rig the foreign exchange market?

Here is a tip:

Rigging the market refers to a situation where the prices are manipulated so as to lure unsuspecting buyers or sellers into the market.

Explanation

Penalties should be imposed on banks that rig the foreign exchange market because the confidence of the traders on the currency's benchmark is fundamental to the stability of the foreign exchange market. And manipulation by banks in the market erodes their confidence and threatens the stability of the foreign exchange markets. Therefore, to prevent market rigging the banks that indulge in currency rigging should be fined heavily by the government. The government can also restrict a bank's right for trading currency for a time that they see fit.

Verified Answer

Banks that rig the market should be fined heavily and restricted from trading currencies for a specified period of time. 

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