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Select the correct option.

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  • This topic has 2 replies, 2 voices, and was last updated May-18 by doCFA.
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    • doCFA
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      Forum Level 1 Summer Associate
      24 May 2018 at 11:15 am
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      In order to control a capital inflow surge,
      a sterilized intervention operation:

      A.  
      decreases a country’s monetary base.

      B.   
      increases the level of short-term interest rates.

      C.  offsets
      the excess liquidity created by FX intervention activities.

    • Stuj79
      Participant
      Forum Level 2 Associate
      24 May 2018 at 4:07 pm
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      I’ll opt for C 🙂

    • doCFA
      Participant
      Forum Level 1 Summer Associate
      24 May 2018 at 6:16 pm
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      Yes, You are right. 

      C is correct. In a sterilized
      operation, the authorities of an emerging market country would sell domestic
      securities to the private sector to reduce the excess liquidity created by FX
      intervention activities.

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