Y6
Suppose that a central bank that is operating on the downward-sloping portion
of the reserve demand curve decides to purchase $1,000 worth of foreign
exchange reserves and then sterilize this foreign exchange market
intervention. Show the impact on the central bank’s balance sheet.
Central Bank Balance Sheet
U.S. Securities (Click to select)
Foreign currency (Click to select) to select) ✓
+$1,000
-$1,000
What would the overall impact be on the monetary base?
Bank Reserves (Click to select)
Bank Reserves (Click to select)
V
V
The overall impact of the sterilized intervention is to make a compositional
change on the (Click to select)( asset/liability)side of the balance sheet while leaving the
(Click to select)(asset/liability)side unchanged. Therefore, the sterilized intervention
(Click to select)(leaves unchanged/decrease/increases)
change.
✓the monetary base and the domestic interest rate does not
What would be the impact, if any, on the exchange rate? Assume that the
intervention took place in a deep, well-functioning foreign exchange market.
The exchange rate will (Click to select)(leaves unchanged/decrease/increases)
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