Question

explain what sort of open market operation- buying or selling government bonds- would produce a stronger...

explain what sort of open market operation- buying or selling government bonds- would produce a stronger currency?

It is easier for a central bank, through buying and selling of its own currency and foreign exchange reserves, to assure a weak exchange rate or a strong one?

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Higher interest rates promote a stronger currency as investors are interested in investing more in that currency now. TIght monetary policy also promotes stronger currency. Both can be achieved by selling government bonds that take money away from the people thus reducing money stock in the economy and also increase in interest rates.

The central bank, through buying and selling its own currency and foreign exchange reserves, assures a weak currency. Currency intervention doesn't allow the country's currency to appreciate against a foreign currency which promotes exports. Hence, weak currency is actually helpful in export-driven economies.

Add a comment
Know the answer?
Add Answer to:
explain what sort of open market operation- buying or selling government bonds- would produce a stronger...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • When the Federal Reserve conducts open market operations, it buys or sells government bonds. buys and...

    When the Federal Reserve conducts open market operations, it buys or sells government bonds. buys and sells foreign currency. manipulates of the rate at which it loans to member banks. increases or decreases the required reserve ratio. How will the Fed's policy action change the money supply? Use only the actions corresponding to your choice in the previous part. The money supply increases The money supply decreases Answer Bank Answer Bank The Fed sells foreign currency The Fed buys bonds...

  • The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds...

    The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds denominated in Rupees (INR) in the secondary market (i.e., the market where existing bonds are traded among investors), if these investors hold on to the bonds for a minimum of two years. Suppose that foreign sovereign wealth funds with massive amounts of dollars to invest decide to purchase substantial quantities of these bonds; at the same time, the Reserve Bank of India (RBI), the...

  • (a) Why is the interbank lending market often called market for reserves? Explain, with the help of a supply/demand...

    (a) Why is the interbank lending market often called market for reserves? Explain, with the help of a supply/demand diagram, how the equilibrium interbank rate is determined. How are the Central bank's lending rate and the rate paid on banks reserves reflected in your diagram? (30 Marks) b) The Central bank wishes to lower market interest rates- will it buy or sell bonds in the open market to meet this target? Use the relevant market equilibrium framework in your answer....

  • The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds...

    The Indian authorities recently announced that they would allow foreign investors to buy Indian government bonds denominated in Rupees (INR) in the secondary market (i.e., the market where existing bonds are traded among investors), as long as these investors hold on to the bonds for a minimum of two years. Suppose that foreign sovereign wealth funds with massive amounts of dollars to invest decide to purchase substantial amounts of these bonds; at the same time, the Reserve Bank of India...

  • Suppose government increased lump-sum taxes T in an open market economy, which operates under fixed exchange...

    Suppose government increased lump-sum taxes T in an open market economy, which operates under fixed exchange rate regime. What should central bank do to maintain the currency peg in the short run and long run? What happens to price level and real exchange rate in the short run and in the long run? Explain in detail.

  • BACK TO ASSIGNMENT OVERVIEW Assignment: Federal Open Market Committee (FOM Explain the Federal Open Market Committee...

    BACK TO ASSIGNMENT OVERVIEW Assignment: Federal Open Market Committee (FOM Explain the Federal Open Market Committee Open Market Operations, and the Federal Funds Rate Question Which of the following is true of open market operations? Select the correct answer below 0 Open market operations involves the buying and selling of stocks on the New York Stock Exchange O Open market operations target the amount of currency in the market. O Open market operations involve the purchase and sale of government...

  • 1) The Fed carries out its open market operations through Select one: A. the office of...

    1) The Fed carries out its open market operations through Select one: A. the office of the Comptroller of the Currency and the largest U.S. money banks. B. the Desk of the NY District Bank and its network of authorized securities dealers. C. U.S. securities firms buying and selling stocks, bonds, and government securities. D. the New York Stock Exchange and affiliated stock brokers. 2) The Federal Reserve is a quasi-independent government agency directly under the authority of the Select...

  • China conducts open market operations The People's Bank of China buys 20 billion yuan of government...

    China conducts open market operations The People's Bank of China buys 20 billion yuan of government securities from ICBC The People's Bank of China (the central bank of China) indicated it would lower interest rates and inject 685 billion yuan ($105 billion) into the banking system Show how the transaction changes the balance sheets by filling in the numbers through open market operations People's Bank of China Assets billions of yuan Source: Bloomberg News, February 29, 2016 Liabilities In the...

  • Macroeconomics: Intermediate Theory/ Calc-based 4. Consider an economy that abides by a Mundell Fleming model. Capital...

    Macroeconomics: Intermediate Theory/ Calc-based 4. Consider an economy that abides by a Mundell Fleming model. Capital is imperfectly mobile, prices are perfectly sticky in the short run, and the exchange rate is fixed. Assume that the current exchange rate is at its tar get and the current domestic interest rate is equal to the foreign interest rate. Suppose the local central bank wants to stimulate economic activity by increasing the supply of money through conventional open market oper- ations. Which...

  • Assignment # 1 What are the philosophical foundations of free-market ideology? 1. 2. Explain how in reality markets are and cannot be free of government intervention. What are the arguments for an...

    Assignment # 1 What are the philosophical foundations of free-market ideology? 1. 2. Explain how in reality markets are and cannot be free of government intervention. What are the arguments for and against such intervention? What is meant by market failure? List six examples of such failures and explain how each example you give constitutes a market failure. What would be a remedy to each of these failures? 3. 4. In the first chapter of the textbook, you have a...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT