In an effort to diversify, the Central Bank of China has decided to exchange some of its dollar reserves for euros. Follow the impact of this move on the U.S. banking system's balance sheet, the Federal Reserve's balance sheet, and the European Central Bank’s balance sheet. What is the impact on the U.S. and Chinese monetary bases? Conceptual Problem 6 List the factors that you suspect may have caused the Federal Reserve to lose control of the quantity of money in the economy. Explain your reasoning. Analytical Problem 1 Suppose you examine the central bank’s balance sheet and observe that since the previous day, reserves had fallen by $100 million. In addition, on the asset side of the central bank’s balance sheet, securities had fallen by $100 million. What activity might the central bank have carry out earlier in the day to lead to these changes in the balance sheet? Do you think the central bank was aiming to increase, decrease or maintain the size do the money supply by carrying out the described change? Explain your answer. Analytical Problem 2 In which of the following cases will the size of the central bank’s balance sheet change? a.The Federal Reserve conducts an open market purchase of $100 million US treasury securities b.A commercial bank borrows $100 million from the Federal Reserve c.The amount of cash in the vaults of commercial banks falls by $100 due to withdrawals by the public.