Question 4 The pound is very strong against the US dollar due to increased demand for pounds in the foreign exchange market and has moved from $1.60/1 to $1 .80/1, so the Bank of England decides to intervene to sell the pound and buy US dollars to move the rate back to $ 1 .60/ 1. Illustrate all of this using a supply and demand for pounds in the foreign exchange market diagram. Clearly indicating the amount intervention undertaken by the Bank of England. Briey comment on the implications of the intervention for the UK money supply, UK interest rate and the Bank of England's foreign exchange reserves (assume the intervention is non sterilized). [10 marks]