a) Illustrate a simple balance sheet of the central banks of Malaysia (Bank Negara Malaysia) and the U.S. (Federal Reserve). Show in your diagram the effect on the component of the monetary base of each nation of the Bank Negara Malaysia selling US$] million bank deposits. Assume that the spot exchange rate is RM3.90 per US dollar (RM/US$). (8 marks)

b) Suppose Malaysia partially sterilizes the foreign exchange transaction in part (a) by buying RMl,800,000 million of securities. What is the total change in the Malaysian money stock that result from both the foreign exchange transaction and the openmarket operation? Include the balance sheet of Malaysia in your answer. (8 marks)