A purchase of foreign assets by a central bank has the same impact on the monetary base as:

Question

Quizplus · Accepted Answer

A purchase of foreign assets by a central bank involves the exchange of domestic currency for foreign currency. This increases the supply of domestic currency in the market, thus expanding the monetary base. An open market purchase of government securities also involves the exchange of money for securities, which increases the monetary base in the same manner. On the other hand, an open market sale of government securities reduces the monetary base, while an increase in the discount rate or a reduction in the interest on reserves affect the money supply indirectly by impacting the lending and borrowing behavior of commercial banks.

A Purchase of Foreign Assets by a Central Bank Has