<Dd> For example, aiming at decreasing the exchange rate / price of the domestic currency, authorities could purchase foreign currency bonds . During this transaction, extra supply of domestic currency will drag down domestic currency price, and extra demand of foreign currency will push up foreign currency price . As a result, the exchange rate drops . </Dd> <P> Indirect currency intervention is a policy that influences the exchange rate indirectly . Some examples are capital controls (taxes or restrictions on international transactions in assets), and exchange controls (the restriction of trade in currencies). Those policies may lead to inefficiencies or reduce market confidence, but can be used as an emergency damage control . </P> <P> In general, there is a consensus in the profession that non-sterilized intervention is effective . Similarly to the monetary policy, nonsterilized intervention influences the exchange rate by inducing changes in the stock of the monetary base, which, in turn, induces changes in broader monetary aggregates, interest rates, market expectations and ultimately the exchange rate . As we have shown in the previous example, the purchase of foreign - currency bonds leads to the increase of home - currency money supply and thus a decrease of the exchange rate . </P> <P> On the other hand, the effectiveness of sterilized intervention is more controversial and ambiguous . By definition, the sterilized intervention has little or no effect on domestic interest rates, since the level of the money supply has remained constant . However, according to some literature, sterilized intervention can influence the exchange rate through two channels: the portfolio balance channel and the expectations or signaling channel . </P>

Currency and bank deposits that are denominated in foreign money are called