Central banks play a crucial role in managing liquidity risk in Forex markets. They are responsible for ensuring that the market has sufficient liquidity to support smooth trading and prevent disruptions. Here are some ways central banks manage liquidity risk in Forex markets:

1. Setting Interest Rates: One of the main tools that central banks use to manage liquidity risk is the setting of interest rates. By raising or lowering interest rates, central banks can influence the supply of money in the market and encourage or discourage borrowing and lending.
2. Open Market Operations: Central banks can also use open market operations to manage liquidity risk. In this process, the central bank buys or sells securities in the market to inject or remove liquidity. By purchasing securities, the central bank can increase the money supply and make it easier for market participants to access liquidity.
3. Lender of Last Resort: Central banks also act as lenders of last resort, providing emergency funding to banks and financial institutions that are facing liquidity shortages. This helps to prevent the spread of liquidity risk and stabilize the market.
4. Foreign Exchange Interventions: In some cases, central banks may intervene in the foreign exchange market to manage liquidity risk. By buying or selling currencies, central banks can influence the supply and demand for a particular currency and stabilize its value.