Question $4$

The dollar$-$pound exchange rate is $$\frac{1\mathrm{.}50}{}1$ but the pound suddenly appreciates to

$$\frac{1\mathrm{.}70}{}1.$ Then which is true with sterilized intervention by the Bank of England to get

the pound back to $$\frac{1\mathrm{.}50}{}1.$

A$)$ The Bank of England sells pounds in the foreign exchange market, the Bank of

England's foreign exchange reserves rise, the Bank of England sells Treasury bills and

UK interest rates will be unchanged overall.

B$)$ The Bank of England sells pounds in the foreign exchange market, the Bank of

England's foreign exchange reserves rise, the Bank of England sells Treasury bills and

UK interest rates will rise overall.

C$)$ The Bank of England sells pounds in the foreign exchange market, the Bank of

England's foreign exchange reserves fall, the Bank of England buys Treasury bills and

UK interest rates will be unchanged overall.

D$)$ The Bank of England sells pounds in the foreign exchange market, the Bank of

England's foreign exchange reserves rise, the Bank of England buys Treasury bills and

UK interest rates will be unchanged overall.