Sterilized intervention is the policy that:
A) targets a domestic inflation rate within a certain range of values.
B) attempts to influence exchange rate movements with official statements on the government's preferred rate, without taking any direct action in the financial markets.
C) coordinates monetary and fiscal policies with one's trading partners so as to achieve particular international economic outcomes.
D) offsets private capital movements with changes in the asset portfolio of the central bank.

Question

Quizplus · Accepted Answer

Sterilized intervention is a policy in which a central bank purchases or sells its currency or other assets in the foreign exchange market, but at the same time, it takes offsetting actions to counteract the effects of the intervention on its domestic money supply. This is typically done to prevent the intervention from affecting domestic interest rates and inflation. Option D correctly describes the concept of sterilized intervention, where the central bank changes the composition of its asset portfolio to offset the effects of private capital movements on the domestic money supply. Therefore, option D is the best choice.

Sterilized Intervention Is the Policy That