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Answer the following questions related to intervention in the foreign exchange market. (i) If the Central Bank of India (CBI) buys Indian rupees in the

Answer the following questions related to intervention in the foreign exchange market.

(i) If the Central Bank of India (CBI) buys Indian rupees in the foreign exchange market but conducts an offsetting open market operation to sterilize the intervention, what will bethe impact onthe exchange rate, the money supply and international reserves? Explain(3 marks)

(ii)If the Central Bank of India (CBI) sells its foreign assets in the foreign exchange market but does not sterilize the intervention,whatwillbethe impact onthe exchange rate, the money supply and international reserves?Explain (3 marks)

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