Lecture 8 Sterilization Flashcards
1
Q
What is sterilization?
A
a monetary policy by central banks to offset effect of foreign exchange interventions on domestic money supply.
2
Q
If a central bank wants to strengthen its currency, it can…
A
sell foreign currency and buy domestic currency and decrease domestic supply. can lead to deflationary pressures.
3
Q
If a central bank wants to weaken its currency, it can…
A
buy foreign currency and sell domestic currency and increase domestic supply. can lead to inflationary pressures.
4
Q
What is the objective of sterilization?
A
Maintain independent monetary policy and control interest rates.
