Economics · Monetary Policy
If the central bank intervenes in the foreign exchange market by purchasing a significant amount of foreign currency, what is the immediate effect on domestic liquidity?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The domestic interest rates immediately double
- 2There is no change in the domestic money supply
- 3Domestic liquidity increases as the central bank releases local currency✓
- 4Domestic liquidity decreases as currency is withdrawn
Correct answer
Domestic liquidity increases as the central bank releases local currency
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