Consider a country that has an official settlements balance surplus and is experiencing upward pressure on the exchange rate value of its currency. Which of the following will NOT be true in this context?
A)The central bank of this country must intervene to buy foreign currency and sell domestic currency.
B)Its balance sheet will show an increase in official international reserve holdings.
C)Its balance sheet will show an increase in its liabilities.
D)For the regular bank that is involved in the intervention transaction, the central bank decreases the bank's deposits at the central bank.

Question

Quizplus · Accepted Answer

When the central bank intervenes by buying foreign currency, it increases the bank's deposits at the central bank, not decreases them.

Consider a Country That Has an Official Settlements Balance Surplus