Suppose that the USD has been significantly appreciating against the Japanese yen over the last several months and that the Federal Reserve is considering sterilized direct intervention to reverse this trend. What sterilized intervention steps would the Fed take to reverse the recent USD appreciation? That is, clearly and explicitly state the exact steps taken (and the timing of steps: Are the steps taken sequentially? Or are they taken at the same time?) to engage in the necessary sterilized direct intervention. Be sure to clearly specify which currencies are being exchanged and what government securities are being bought and sold (and by whom) - the details are important.

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In the scenario described where the USD has significantly appreciated against the Japanese yen and the Federal Reserve is considering sterilized direc... View the full answer