How do ese operations affect foreign exchange risk premium

Reference no: EM131248304

"When domestic and foreign bonds are perfect substitutes, a central bank should be indifferent about using domestic or foreign assets to implement monetary policy ? Discuss. It United States foreign exchange intervention is sometimes done by an Exchange Stabilization Fund or ESF (a branch of the Treasury Department) that manages a portfolio of U.S. government and foreign currency bonds. An ESF intervention to support the yen, for example, would take the form of a portfolio shift out of dollar and into yen assets. Show that ESF interventions are automatically sterilized and thus do not alter money supplies. How do ESE operations affect the foreign exchange risk premium?

Reference no: EM131248304

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