An open-market purchase of foreign bonds to increase a central bank's international reserves:
A) increases the central bank's liabilities and assets.
B) decreases the central bank's assets and liabilities.
C) increases the central bank's assets but decreases its liabilities.
D) increases the central bank's liabilities and decreases its assets.

Question

Quizplus · Accepted Answer

When a central bank purchases foreign bonds, it increases its assets (the bonds themselves) and its liabilities (typically the currency or reserves it issues to pay for the bonds), thus expanding both sides of its balance sheet.

An Open-Market Purchase of Foreign Bonds to Increase a Central