If Reserve Bank of Australia (RBA) is trying to_the AUD against theUSD by conducting a sterilised intervention, it would sell USD to Nationa Australia Bank (NAB)in return for AUD.It would then_NAB treasury.(Choose all that apply)bonds to offset effects on the domestic_Select one or more: a.strengthen:buy back from;money supply b.strengthen:issue and sell: monev demand weaken; buy back from;money supply. d.weaken;issue and sell; money demand
Question
If Reserve Bank of Australia (RBA) is trying to_the AUD against theUSD by conducting a sterilised intervention, it would sell USD to Nationa Australia Bank (NAB)in return for AUD.It would then_NAB treasury.(Choose all that apply)bonds to offset effects on the domestic_Select one or more: a.strengthen:buy back from;money supply b.strengthen:issue and sell: monev demand weaken; buy back from;money supply. d.weaken;issue and sell; money demand
Solution
The correct answer is:
a. strengthen: buy back from; money supply
Here's the step by step explanation:
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If the Reserve Bank of Australia (RBA) is trying to strengthen the AUD against the USD, it means the RBA wants to increase the value of AUD relative to USD.
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To do this, the RBA would sell USD to National Australia Bank (NAB) in return for AUD. This increases the demand for AUD, which in turn increases its value.
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However, this action would also increase the money supply in the economy, which could lead to inflation. To prevent this, the RBA would then buy back bonds from the NAB treasury. This is known as a sterilised intervention. By buying back bonds, the RBA is effectively taking money out of the economy, which helps to offset the increase in money supply caused by the initial sale of USD for AUD.
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