Central Bank intervention in forex market

External question — Quantitative Finance Stack Exchange Author: Peter Original post: https://quant.stackexchange.com/questions/30836 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Sometimes CB intervenes in fx market buy buying or selling currency to make it stay in some band. My question is how does Central Bank determine the size of interventions? I mean how do they know how much money they need to spend? For example buy 100m usd or 200musd?

External answer — Quantitative Finance Stack Exchange Author: Chris Taylor Original post: https://quant.stackexchange.com/a/30840 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. They can simply place a (very large) limit order at the determined price level(s). For example, when the SNB wanted to keep EUR/CHF above 1.20 they had a large buy order at 1.20 (i.e. they agreed to buy 1 EUR for 1.20 CHF) and this guarantees that the EUR/CHF rate stays above 1.20 for as long as the limit order is in place.

External answer — Quantitative Finance Stack Exchange Author: dm63 Original post: https://quant.stackexchange.com/a/30848 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. They don't know how much intervention will be required to keep the currency at a given level. It depends how much other market participants want to resist the move. If the central bank is relatively weak, with limited reserves, participants may choose to challenge the intervention, for example.