5. How a foreign exchange intervention by the Treasury affectsthe monetary base Suppose that the Treasury Department wants the U.S. dollar to appreciate against the Brazilian real. The Treasury will order the Federal Reserve Bank of New York to buy of American commercial banks. dollars and sell Brazilian real through the foreign exchange department The following graph shows the market for foreign exchange, where the supply curve depicts the supply of the U.S., dollar and the demand curve depicts the demand for the U.S. dollar. Adjust the following graph to illustrate the actions by the Federal Reserve Bank of New York. U.S. DOLLARS BRAZILIAN REAL 52 Demand for U.S. Dollars QUANTITY OF U.S. DOLLARS The supply of dollars in the foreign exchange market decreases Demand for U.S. Dollars ロー Supply of U.S. Dollars the demand for dollars does not change and thus the value of the dollar rises against the Brazilian real. As a result, the monetary base in the U.S. will not change ▼ because bank reserves will decrease