Between January 2021 and October 2022, the market value of the Colombian peso (COP) fell from 3,450 COP to 1 US dollar to 4,900 COP to 1 US dollar. In response, the Colombian central bank (Banco de la República) utilized a significant portion of its foreign exchange reserves in an attempt to support the currency and prevent further depreciation.
Evaluate, with the use of one or more appropriate diagrams, whether a central bank should attempt to prevent a depreciation in its country's exchange rate.
30 exam-style questions on OCR A Level Economics Exchange rates. Each one has a worked solution and a mark scheme showing where the marks go.