An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves.

Question

Quizplus · Accepted Answer

By selling domestic currency to purchase foreign assets, the central bank acquires foreign currency which increases its international reserves. However, the intervention may also cause changes in the exchange rate and other economic variables, and the impact of the operation may depend on various factors such as the size, timing, and credibility of the intervention.

An Unsterilized Intervention in Which Domestic Currency Is Sold to Purchase