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Q. What is the policy of sterilization? Give an example.
Answer:
• Untainted foreign exchange intervention - policy by which central banks perform equal foreign and domestic asset transactions in opposite directions to invalidate the impact of foreign exchange operations on domestic money supply.
• Illustration Bank of Pecunia sells $100 in foreign assets receives $100 check from PecuniaCorp and the Central foreign liabilities and assets decline simultaneously by $100 fall in money supply.
• To undo effect on money supply central bank buys $100 of domestic assets. This amplifies its domestic assets and its liabilities by $100 offsetting the money supply effect of sale of foreign assets.
#question.what is the baises for international trade.
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