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Chapter 14 study guide - Chapter 14 The International...

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Chapter 14- The International Financial System Foreign Exchange Interventions- Central banks activities that influence exchange rates. Attempt to influence their countries exchange rates by buying/selling currencies Unsterilized foreign exchange intervention o central banks purchase of domestic currency & and corresponding sale of foreign assets in the foreign exchange market leads to an equal decline in its international reserves & monetary base o central banks sale of domestic currency to purchase foreign assets in foreign exchange market results in an equal rise in its international reserves & monetary base o ex- Fed decides to sell 1 billion of its foreign assets for 1 billion dollars. Since this action decreases the monetary base by 1 billion this is an unsterilized intervention sterilized foreign exchange intervention o foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged o ex- take the unsterilized example and in addition the fed conducts an open market purchase of 1 billion of government bonds, which would increase the monetary base by 1 billion evening out the monetary base.
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