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To strengthen the exchange rate, the central bank simply raises its policy interest rate. As investors in search of higher returns increase their demand for the currency, the exchange rate appreciates. By lowering interest rates, the central bank can weaken the exchange rate.

To reduce the value of a currency there are a few policies the government could adopt. Looser monetary policy ? cutting interest rates. Looser fiscal policy ? cutting tax and increasing government spending. Selling reserves of currency on the foreign exchange market and buying rival currencies.

These are the most common currency controls: Banning or limiting purchases of foreign currency within the country. Banning or restricting the use of foreign currency within the country. Setting exchange rates (instead of letting the value of the currency fluctuate ing to market forces)

Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.

The Fed controls the supply of money by increas- ing or decreasing the monetary base. The monetary base is related to the size of the Fed's balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve.

A fixed or pegged rate is determined by the government through its central bank. The rate is set against another major world currency (such as the U.S. dollar, euro, or yen). To maintain its exchange rate, the government will buy and sell its own currency against the currency to which it is pegged.

There are a handful of methods that can solve a currency crisis, including implementing floating exchange rates, moving away from pegged rates, monetary policy that allows for trading with the market, government policies to attract foreign investment, and the country purchasing its own currency.