the economics of money, banking, and financial markets

604 #

© 2014 Pearson Canada Inc.#

13. 
    

    Everything else held constant, if a central bank makes a sterilized purchase of foreign assets,
    then the domestic currency will ____.
    A) appreciate
    B) depreciate
    C) either appreciate, depreciate, or remain constant
    D) not be affected
    Answer: D
    Diff: 1 Type: MC Page Ref: 495 - 496
    Skill: Recall
    Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
    effects on the money supply and the exchange rate

    
    


14. 
    

    Because sterilized interventions mean offsetting open market operations, there is no impact
    on the monetary base and the money supply, and therefore a sterilized intervention ____.
    A) causes the exchange rate to overshoot in the short run
    B) causes the exchange rate to undershoot in the short run
    C) causes the exchange rate to depreciate in the short run, but has no effect on the exchange rate
    in the long run
    D) has no effect on the exchange rate
    Answer: D
    Diff: 2 Type: MC Page Ref: 495 - 496
    Skill: Recall
    Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
    effects on the money supply and the exchange rate

    
    


15. 
    

    Everything else held constant, if a central bank makes a sterilized sale of foreign assets, then
    the domestic currency will ____.
    A) appreciate
    B) depreciate
    C) either appreciate, depreciate, or remain constant
    D) not be affected
    Answer: D
    Diff: 1 Type: MC Page Ref: 495 - 496
    Skill: Recall
    Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
    effects on the money supply and the exchange rate

    
    


16. 
    

    Explain how an unsterilized purchase of foreign assets impacts the exchange rate everything
    else held constant.
    Answer: An unsterlized intervention in which domestic currency is bought and foreign assets are
    sold leads to a fall in international reserves, a fall in the money supply, and an appreciation of the
    domestic currency.
    Diff: 2 Type: SA Page Ref: 494 - 495
    Skill: Recall
    Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
    effects on the money supply and the exchange rate