The use of domestic open market operations to offset the effects of a foreign exchange market intervention on the domestic money supply is known as
A) normalization.
B) actualization of objectives.
C) sterilization.
D) volatilization.
E) accommodation.

Question

Quizplus · Accepted Answer

Sterilization refers to the use of domestic open market operations to offset the effects of foreign exchange market intervention on the domestic money supply. It is used to prevent changes in the exchange rate caused by a large influx or outflow of foreign currency. This is done by buying or selling domestic securities to decrease or increase the money supply respectively, in order to counteract the effects on the exchange rate.

The Use of Domestic Open Market Operations to Offset the Effects