Effects on relevant financial variables

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Suppose that the Fed intervenes in the foreign exchange market to lower the value of the dollar. Assuming that domestic and foreign assets are perfect substitutes, use T accounts of the Fed to show how an unsterilized foreign-exchange intervention differs from a sterilized one in terms of the mechanics of the intervention and its effects on relevant financial variables?

1. Unsterilized intervention:

2. Sterilized intervention:

Reference no: EM13996179

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