Central Banks - open market operations - open-market operations and the foriegn Exchange Market
6 important questions on Central Banks - open market operations - open-market operations and the foriegn Exchange Market
What happens when the canadian dollar appreiciates relative to the US dollar?
What can canada to to prevent the canadian dollar from depreciating? What would it look like in the balance sheets? What happens to the monetary base? Why? What happens to money supply?
- The central banks buy canadian dollars on the foreign exchange market receiving foreign currency in exchange
- decrease in assets in the form of foreign currency, and an decrease in liability in the form of bank notes in circulation
- because the CAD it buys are no longer in private use the monetary base is reduced
- this is called an open market sell which will contract the money supply
What happens when the canadian dollar is floating?
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What happens when the exchange rate is fixed?
What is the disadvantage of the fixed exchange rate?
the control over domestic monetary base
What is the difference between a fixed exchange rate and a floating exchange rate?
- A fixed exchange rate is inconsistent worth the independent monetary policy
- A floating exchange rate is what permits independent monetary policy
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