Action by a central bank to offset the effect of a foreign exchange intervention,on the domestic money supply,by using the open-market operations is known as:
A) Monetary protectionism
B) Sterilized intervention
C) Currency creation
D) Injecting money supply

Question

Quizplus · Accepted Answer

Sterilized intervention is the action taken by a central bank to neutralize the impact of foreign exchange intervention on the domestic money supply through open-market operations. This is done to prevent any undesired impact on domestic interest rates or inflation levels. In this process, the central bank may sell or buy government securities in the market to maintain a stable money supply. The other options given (A, C, and D) do not accurately reflect the described action of sterilized intervention.

Action by a Central Bank to Offset the Effect of a Foreign