5. How a foreign exchange intervention by the Treasury affectsthe monetary base Suppose that the Treasury Department wants the U.S. dollar to appreciate against the Mexican peso. dollars and Mexican pesos through the foreign exchange department of The Treasury will order the Federal Reserve Bank of New York to American commercial banks. The following graph shows the market for foreign exchange, where the supply curve depicts the supply of the U.S., dollar and the demand curve depicts the demand for the U.S. dollar. Adjust the following graph to illustrate the actions by the Federal Reserve Bank of New York. ? Supply of US Dollars Demand for US Dollars 1 Supply of US Dollars Demand for US Dollars US DOLLARS MEXICAN PESO QUANTITY OF US DOLLARS The supply of dollars in the foreign exchange market the dollar the demand for dollars against the Mexican peso. As a result, the monetary base in the U.S. will because and thus the value of