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© 2014 Pearson Canada Inc.#
Suppose that the Bank of Japan buys yen-denominated assets with Canadian dollar 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: D
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
When the central bank allows the purchase or sale of domestic currency to have an effect on
the monetary base, it is called ____.
A) an unsterilized foreign exchange intervention
B) a sterilized foreign exchange intervention
C) an exchange rate feedback rule
D) a money neutral foreign exchange intervention
Answer: A
Diff: 1 Type: MC Page Ref: 494
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 foreign exchange intervention with an offsetting open market operation that leaves the
monetary base unchanged is called ____.
A) an unsterilized foreign exchange intervention
B) a sterilized foreign exchange intervention
C) an exchange rate feedback rule
D) a money neutral foreign exchange intervention
Answer: B
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