Running head: FINANCE QUESTIONS
Finance Question: “Blades, Inc. Case”
Date of Submission
In the case, the effort of the Thailand government to intervene is viewed as a direct
intervention. This is because the Thai government traded its dollar reserves for the local currency
so as to strengthen its currency. If the government intervenes in such a way, it will create a
demand for baht and dollars needed for the swap. In this case, there will be an increased pressure
on the baht. In a situation where there is an indirect intervention by a nation central bank, there
will be efforts to change the worth of its controlled money by altering the major influencing
policies that influence it.
In the mentioned case, the action by the Thailand government to try and increase the
value of the baht would have been appropriate to increase the interest rates by reducing the Thai
money circulation. This is the monetary policy where the central bank engages in open market
operations and gets the excess money supply from the Thai economy.
This is done by the sale of short-term government bonds to the public which reduces the
money supply by the proportion that the central bank gains from such a sale. This creates a
shortage of money leading to higher borrowing from banks which raises the interest rates
through the ...