The purchase of foreign currency by a central bank will tend to cause ________.

Question

Quizplus · Accepted Answer

When a central bank purchases foreign currency, it increases the demand for foreign currency and decreases the supply of domestic currency. This, in turn, leads to a depreciation of the domestic currency as its value decreases relative to the foreign currency. Therefore, option B is correct. Options A, C, and D are incorrect as they suggest an appreciation, no change in the domestic currency or no change in both currencies, respectively.

The Purchase of Foreign Currency by a Central Bank Will