Suppose the Fed buys $150 million of Japanese yen with Federal Reserve notes. What is the net effect on the monetary base?

Suppose the Fed buys $150 million of Japanese yen with Federal Reserve notes. What is the net effect on the monetary base?

A. The monetary base rises by $150 million.

B. The monetary base falls by $150 million.

C. The monetary base stays the same since Japanese yen would not count in the Fed’s balance sheet.

D. The net effect cannot be determined without knowing the dollar/yen exchange rate.

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