Question: U.S. foreign exchange intervention is sometimes done by an Exchange Stabilization Fund, or ESF (a branch of the Treasury Department), which manages a portfolio of

U.S. foreign exchange intervention is sometimes done by an Exchange Stabilization Fund, or ESF (a branch of the Treasury Department), which manages a of U.S. government and foreign currency bonds. An ESF intervention to support the yen, for example, would take the form of a shift out of dollar and into yen assets. Show that ESF interventions are automatically sterilized and thus do not alter money supplies. How do ESF operations affect the foreign exchange risk premium?

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An ESF intervention to support the yen involves an exchange of dollardenominated assets initially ... View full answer

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