In: Economics
2. How does a sterilized sale of foreign reserve assets affect the domestic interest rate? No affect on interest rate as there is no change in money supply.
3. If a country has a current account surplus, will it have capital inflows or outflows? Current account surplus means it must have capital account deficit. So capital will flow out.
4. If a country with a fixed exchange rate has a balance of payments deficit, would it buy or sell reserve assets to maintain the par value of its exchange rate?
Balance of payments deficit means that there is shortage of forex. So it would sell reserve assets.