Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of:

Question

Quizplus · Accepted Answer

Nonsterilized intervention refers to a situation where a central bank intervenes in the foreign exchange market but does not sterilize the resulting impact on the domestic money supply. This means that if the central bank buys foreign currency, it will increase the supply of its domestic currency, which can lead to inflationary pressure.

Assume a Central Bank Exchanges Its Currency for Other Foreign