Question
What is the main role of a central bank's open market operations in monetary policy?
Tap to flip
Answer
Primary tool for changing reserves and short-term market rates.
Tap to flip back
Question
Why must a central bank sell USD reserves when defending a fixed peg after a rate cut?
Tap to flip
Answer
To buy domestic currency and support the pegged exchange rate.
Tap to flip back
Question
If a country with a USD peg and free capital mobility cuts interest rates, what pressure emerges?
Tap to flip
Answer
Capital outflows and reserve losses pressure the peg.
Tap to flip back
Question
Under the Mundell trilemma, why can't a country keep a fixed exchange rate, free capital mobility, and independent monetary policy all at once?
Tap to flip
Answer
Those three objectives are mutually inconsistent.
Tap to flip back