Suppose the Fed buys $200 million worth of Euros with U.S. currency and, at the same...
Suppose the Fed buys $200 million worth of Euros with U.S. currency and, at the same time, sells $200 million of U.S. government securities for U.S. currency in a domestic open market operation. What is the net effect on the monetary base? How has the Fed’s balance sheet been affected?
Homework Answers
Ans. The net effect of monetary base would be 0 because buying foreign currency would increase the monetary base and selling securities would reduce the money supply. In Fed's Balance Sheet - First one would increase the Foreign Reserves of the country and reduce the cash reserves and Second would decrease the securities amount present in the asset side of the Central Bank.
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Suppose the Fed buys $200 million worth of Euros with U.S.
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