A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called
A) an unsterilized foreign exchange intervention.
B) a sterilized foreign exchange intervention.
C) a balance-of-payment exchange rate rule.
D) monetary neutrality.

Question

Quizplus · Accepted Answer

A sterilized foreign exchange intervention is when a central bank engages in a foreign exchange intervention but also conducts an offsetting open market operation to keep the monetary base unchanged. This allows the central bank to intervene in the foreign exchange market without disrupting domestic monetary policy, hence the term "sterilized." The other options are not accurate descriptions of this type of intervention.

A Foreign Exchange Intervention with an Offsetting Open Market Operation