There are limits to the ability of monetary authorities to use sterilized intervention in the case of a surplus because:
A)the central bank may be unwilling to increase its holdings of foreign currency.
B)the pressure from foreign countries to allow the domestic currency to depreciate will lead to large losses.
C)the central bank's ability to constantly obtain foreign currency for the sterilized intervention is constrained.
D)the export level is fixed and it cannot be allowed to drop.

Question

Quizplus · Accepted Answer

Sterilized intervention involves the central bank buying foreign currency to influence the exchange rate while offsetting the impact on the money supply. However, the central bank may be unwilling to increase its holdings of foreign currency indefinitely due to risks such as exchange rate losses or inflationary pressures.

There Are Limits to the Ability of Monetary Authorities to Use