In September of 2000, the Federal Reserve Bank of New York sold dollars in exchange for euro. To keep the federal funds rate on target, the Open Market desk:

Question

Quizplus · Accepted Answer

The sale of dollars in exchange for euros would increase the supply of dollars in the market, which would put downward pressure on the federal funds rate. To offset this effect, the Open Market desk would need to sell U.S. Treasury bonds, which would reduce the supply of dollars in the market and push the federal funds rate back up to its target level.