Financial Markets and Institutions (2-downloads)

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Part 5 Financial Markets

Q U E S T I O N S

1. If the Federal Reserve buys dollars in the foreign

exchange market but conducts an offsetting open

market operation to sterilize the intervention, what

will be the effect on international reserves, the money

supply, and the exchange rate?

2. If the Federal Reserve buys dollars in the foreign

exchange market but does not sterilize the interven-

tion, what will be the effect on international reserves,

the money supply, and the exchange rate?

3. For each of the following, identify in which part of the

balance-of-payments account it appears (current

account, capital account, or net change in international

reserves) and whether it is a receipt or a payment:

a. A British subject’s purchase of a share of Johnson

& Johnson stock

b. An American’s purchase of an airline ticket from

Air France

c. The Swiss government’s purchase of U.S.

Treasury bills