Suppose China decides to keep its current level of foreign exchange reserves but to change their composition from mainly U.S. dollars to euros.
a. Explain the effect this policy will have on the Chinese, U.S., and euro-area monetary bases.
b. Explain the effect it will have on Chinese, U.S., and euro-area interest rates.
c. Explain the effect it will have on the dollar per yuan, euro per yuan, and dollar per euro exchange rates.