Final answer:
A central bank is concerned about the exchange rate due to its impact on aggregate demand and international trade, as well as the stability of the banking system.
Step-by-step explanation:
A central bank is concerned about the exchange rate for several reasons. Movements in the exchange rate can affect the quantity of aggregate demand in an economy. Frequent substantial fluctuations in the exchange rate can disrupt international trade and cause problems in a nation's banking system, leading to an unsustainable balance of trade and a deep recession if international investors decide to move their money to another country. Furthermore, a central bank must be concerned about whether large and unexpected exchange rate depreciation will drive most of the country's existing banks into bankruptcy.