The Signaling Effect of Foreign Exchange Intervention

question 8

Multiple Choice

The signaling effect of foreign exchange intervention

• A) never has any effect on exchange rates.
• B) can alter the market's view of exchange rates independent from the stance of monetary and fiscal policies.
• C) cannot cause an immediate exchange rate change when bonds denominated in different currencies are perfect substitutes.
• D) never leads to actual changes in monetary or fiscal policy.
• E) can alter the market's view of future monetary policies and cause an immediate exchange rate change.

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Definitions:

Commercial Banks

Financial institutions that provide a range of services, including accepting deposits, providing loans, and offering other financial products.

Bank Failures

The occurrence when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities.

Federal Reserve System

The central bank of the United States, responsible for monetary policy, financial regulation, and stability of the financial system.

Great Depression

A severe worldwide economic downturn that lasted throughout the 1930s, marked by widespread unemployment, deflation, and a significant decline in economic output.