Matched sale-
purchase agreements are just the opposite of repurchase agreements. When executing a matched
sale-purchase agreement, a bank or the FRS sells a security for immediate delivery to a dealer or
a foreign central bank, with the agreement to buy back the same security at the same price at a
predetermined time in the future (generally within 7 days). This arrangement amounts to a
temporary drain of reserves. The impact on the foreign exchange  market is that the national
currency  should  strengthen. Monetary  operations include payments among central banks  or to
international agencies. In addition, the FRS has entered a series of currency swap arrangements
with other central banks  since 1962. For instance,  to help the  allied war effort against Iraq's
invasion of Kuwait in 1990-1991, payments were executed by the Bundesbank and Bank of Japan
to the Federal Reserve. Also, payments to the World Bank or the United Nations are executed
through central banks. States foreign exchange markets by the U.S. Treasury and the FRS is
geared toward restoring orderly conditions in the market or influencing the exchange rates. It is
not geared toward affecting the reserves. There are two types of foreign exchange interventions:
naked intervention and sterilized intervention.
 
Naked intervention, or unsterilized intervention, refers to the sole foreign exchange activity. All
that takes place is the intervention itself, in which the Federal Reserve either buys or sells U.S.
dollars against a foreign currency. In addition to the impact on the foreign exchange market, there

is also a monetary effect on the money supply. If the money supply is impacted, then consequent
adjustments must be made in interest rates, in prices, and at all levels of the economy. Therefore,
a naked foreign exchange intervention has a long-term effect. 
Sterilized intervention neutralizes its impact on the money supply. As there are rather  few
central banks that want the impact of their intervention in the  foreign exchange markets to
affect all corners of their economy, sterilized interventions have been the tool of choice. This
holds true for the FRS as well. The sterilized intervention involves an additional step to the
original currency transaction. This step consists of a sale of government securities that offsets
the reserve addition that occurs due to the intervention. It may be easier to visualize it if you
think that the central bank will finance the sale of a currency through the sale of a number of
government securities. Because a sterilized intervention only generates an impact on the
supply and demand of a certain currency, its impact will tend to have a short-to medium-term
effect.