A foreign exchange intervention that alters the domestic monetary base is:

Question

Quizplus · Accepted Answer

An unsterilized foreign exchange intervention alters the domestic monetary base, meaning it involves injections or withdrawals of domestic currency by the central bank, which can impact domestic interest rates. Sterilization involves offsetting these injections or withdrawals to maintain the same level of the monetary base and stabilize interest rates. Option D is incorrect because foreign exchange interventions can and do occur in practice.

A Foreign Exchange Intervention That Alters the Domestic Monetary Base