Consider a Country That Has an Official Settlements Balance Surplus

question 21

Multiple Choice

Consider a country that has an official settlements balance surplus and is experiencing upward pressure on the exchange rate value of its currency. Which of the following will NOT be true in this context?

• A)The central bank of this country must intervene to buy foreign currency and sell domestic currency.
• B)Its balance sheet will show an increase in official international reserve holdings.
• C)Its balance sheet will show an increase in its liabilities.
• D)For the regular bank that is involved in the intervention transaction, the central bank decreases the bank's deposits at the central bank.

---

Definitions:

Investment Opportunity Set

The array of all possible investment combinations available to an investor considering both risk and return.

Global Minimum-Variance Portfolio

The Global Minimum-Variance Portfolio is an investment portfolio constructed to achieve the lowest possible level of risk (variance) for its expected return, using assets from around the world.

Perfectly Negatively Correlated

A relationship between two securities in which one's price moves in the opposite direction of the other's, resulting in a correlation coefficient of -1.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, often used in finance to quantify the risk of an investment.