The Relative Effectiveness of Spot and Derivatives‐Based Intervention

This paper studies the relative effectiveness of foreign exchange intervention in spot and derivatives markets. We use Brazilian data where spot and nondeliverable futures intervention have been used in tandem for more than a decade. The analysis finds evidence of a link between both modes of intervention and the exchange rate. In line with theory, the impact of spot intervention is strikingly similar to that of futures intervention when convertibility risk is limited. We show that both types of interventions also affect the level and the price of hedging risk in the foreign exchange market.