In order to limit the effect on reserves of a foreign exchange intervention, the Fed engages in _______________
A)seigniorage.
B)sterilization.
C)dollarization.
D)revaluation.

Question

Quizplus · Accepted Answer

Sterilization is the process by which a central bank neutralizes the effect of its foreign exchange intervention on its money supply, thus limiting the impact on its reserves. This is achieved by either selling or buying domestic securities to offset the foreign exchange transactions.

In Order to Limit the Effect on Reserves of a Foreign