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© 2014 Pearson Canada Inc.#
Economics of Money, Banking & Financial Markets, 5e (Mishkin)
Chapter 20 The International Financial System
20.1 Intervention in the Foreign Exchange Market
A central bank ____ of domestic currency and corresponding ____ of foreign assets
in the foreign exchange market leads to an equal decline in its international reserves and the
monetary base, everything else held constant.
A) sale; purchase
B) sale; sale
C) purchase; sale
D) purchase; purchase
Answer: C
Diff: 1 Type: MC Page Ref: 493
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
A central bank ____ of domestic currency and corresponding ____ of foreign assets
in the foreign exchange market leads to an equal increase in its international reserves and the
monetary base, everything else held constant.
A) sale; purchase
B) sale; sale
C) purchase; sale
D) purchase; purchase
Answer: A
Diff: 1 Type: MC Page Ref: 493
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
Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets.
Everything else held constant, this transaction will cause ____ in the foreign assets held by
the Bank of Canada and ____ in the Canadian monetary base.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; an increase
D) a decrease; a decrease
Answer: A
Diff: 1 Type: MC Page Ref: 493
Skill: Applied
Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
effects on the money supply and the exchange rate