Sterilization occurs when the Fed
A) offsets the effects of international currency flows with a protectionist trade policy.
B) directs a permanent increase of the money supply.
C) offsets the effects of a foreign exchange market intervention with domestic open market operations.
D) implements a fixed exchange rate system.
E) changes the domestic prime lending rate in response to foreign exchange market intervention.

Question

Quizplus · Accepted Answer

Sterilization occurs when a central bank takes actions to offset the effects of foreign exchange market interventions on its domestic economy. This is typically done through domestic open market operations, such as buying or selling government securities, to counteract the impact on the money supply. Therefore, choice C is the correct answer.

Sterilization Occurs When the Fed