Question

The sum of currency and bank deposits at the central bank is called: a. the money supply. b. domestic assets. c. the monetary base. d. fractional reserves. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of the country's currency is under downward pressure causes a. international reserve holdings to rise. b. a downward pressure on the country's interest rates. c.an increase in the liabilities of the central bank. d. the domestic money supply to fall. Consider a fixed exchange rate country that has an official settlements balance surplus and is experiencing upward pressure on the exchange rate value of its currency. Which of the following will NOT be true in this context? a. The central bank can intervene to buy foreign currency and sell domestic currency b. Its balance sheet will show an increase in official international reserve holdings. c. Its balance sheet will show an increase in its liabilities d. For the commercial bank that is involved in the intervention transaction, the central bank decreases the commercial bank's deposits at the central bank Following an expansion of the money supply, a government committed to maintaining a fixed exchange rate must: a. accept a surplus in its current account. b.not use sterilized intervention. c. decrease its level of government expenditure and autonomous investments. d. intervene in the foreign exchange market to sell foreign currency and buy domestic currency following indicates taking an action to reverse the effect of official intervention on Which of the the domestic money supply? a. Adjusting the country's interest rates b. Implement c. Sterilization d. Playing by the "rules of the game ting capital controls If a country starts with a deficit in its official settlements balance, intervention to defend a fixed exchange rate will cause: a. the money supply to expand and the ec b. both the money c. th d. the money supply to contract and the economy to grow economy to grow supply and the economy to contract. e money supply to grow and the economy to contract.

Answer 1

Answer

A It is part of monetary Base which also includes cash with banks and public. Notice it is not money supply because here currency and deposits is with central bank. Demand deposits are part of money supply

B money supply falls as govt sells foriegn currency to keep exchange rate at current level

C D. It can't happen. The central bank has to purchase foriegn currency with domestic currency. So it will expand domestic money supply while this step will result in contraction

D it is sterilised intervention in reality. In foriegn exchange market domestic currency will rise. It has to be countered

E sterilisation. It is really definition of sterlisation

F it will have to sell foriegn currency in lieu of domestic currency. Both money supply and economy will contract

Answered all. Please like. Was required to answer only 4 by HomeworkLib policy