Sterilization is
A)the process whereby the full amount of the foreign exchange transaction by the central bank is offset by an open market operation so that the monetary base is increased.
B)the process whereby the full amount of the foreign exchange transaction by the central bank is offset by an open market operation so that the monetary base is unaffected.
C)the process whereby the full amount of the foreign exchange transaction by the central bank is offset by an open market operation so that the monetary base is decreased.
D)the process whereby the full amount of the foreign exchange transaction by the central bank is offset by an open market operation so that the fed funds rate target increases to counteract it.

Question

Quizplus · Accepted Answer

Sterilization is the process where the central bank engages in open market operations to offset the effects of foreign exchange transactions on the monetary base, without affecting the overall level of the monetary base. Therefore, the correct option is B.

Sterilization Is