Federal Reserve

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wxyz

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1. If the Federal Reserve sale $5,000,000 of euros for $5,000,000. what is the effect of this open market operation using T-accounts?

2. If a country wants to keep its exchange rate from changing, it must give up some control over its money supply. Is this statement true, false, or uncertain?

Thanks.



Edited 1 time(s). Last edit at Thursday, July 13, 2006 at 09:19AM by wxyz.
 
5 million dollars for 5 million euro is possible?? That would mean the Fed Funds rate is on par with libor.
 
killa,
$5,000,000 value of euros is possible, whatever the exchange rate it is.



Edited 1 time(s). Last edit at Thursday, July 13, 2006 at 10:07AM by wxyz.
 
Yes, I know its possible. I'm just asking is it likely to evenly exchange 1 USD for 1 Euro. Wouldn't the point of open market operations be to influence the interest rate because of the disparity and thus influence the value of domestic currency?? How would it make sense if the foreign and domestic currency were on par??

Anyway, nevermind..

I withdraw my statement.
 
1. $5,000,000 isn't significant. It would have no effect. I'm guessing someting so small would be a part of a swap to immunize a specific cash flow rather than true operations.

2. All else equal, True.
 
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