If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the same time purchases $1 billion of short-term securities issued by the U.S. Treasury,

Question

Quizplus · Accepted Answer

This is a sterilized foreign-exchange intervention because the Fed is selling foreign securities but also buying domestic securities to counteract the effects on the monetary base. Therefore, there is no change to the overall money supply.

If the Fed Sells $1 Billion of Short-Term Securities Issued