Question : 18.1   Intervention in the Foreign Exchange Market 1) A central bank : 1373825

18.1   Intervention in the Foreign Exchange Market

1) 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

2) 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

3) Suppose that the Bank of Japan buys U.S. dollar assets with yen-denominated assets.  Everything else held constant, this transaction will cause ________ in the foreign assets held by the Federal Reserve and ________ in the U.S. monetary base.

A) an increase; an increase

B) an increase; a decrease

C) a decrease; an increase

D) a decrease; a decrease

4) Suppose that the Bank of Japan buys yen-denominated assets with U.S. dollar assets.  Everything else held constant, this transaction will cause ________ in the foreign assets held by the Federal Reserve and ________ in the U.S. monetary base.

A) an increase; an increase

B) an increase; a decrease

C) a decrease; an increase

D) a decrease; a decrease

5) 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.

6) 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.

7) Everything else held constant, if a central bank makes an unsterilized purchase of foreign assets, then the domestic money supply will ________ and the domestic currency will ________.

A) increase; appreciate

B) increase; depreciate

C) decrease; appreciate

D) decrease; depreciate

8) Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will increase and the domestic currency will ________.

A) purchase; appreciate

B) purchase; depreciate

C) sale; appreciate

D) sale; depreciate

9) Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will ________ and the domestic currency will appreciate.

A) purchase; increase

B) purchase; decrease

C) sale; increase

D) sale; decrease

10) Everything else held constant, if a central bank makes an unsterilized sale of foreign assets, then the domestic money supply will ________ and the domestic currency will ________.

A) increase; appreciate

B) increase; depreciate

C) decrease; appreciate

D) decrease; depreciate

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