Question 1

The Bank of Canada's lender-of-last-resort function ________.

Accepted Answer

A)  is no longer necessary due to CDIC insurance 
B)  has proven to be ineffective 
C)  is needed to prevent runs by large-denomination depositors 
D)  A and B only. 
A)  is no longer necessary due to CDIC insurance 
B)  has proven to be ineffective 
C)  is needed to prevent runs by large-denomination depositors 
D)  A and B only.

Question 2

The primary indicator of the stance of monetary policy in the U.S. is the ________.

Accepted Answer

A)  federal funds rate 
B)  discount rate 
C)  overnight rate 
D)  prime rate 
A)  federal funds rate 
B)  discount rate 
C)  overnight rate 
D)  prime rate

Question 3

The overnight interest rate ________.

Accepted Answer

A)  is the shortest-term rate available 
B)  forms the base of any term structure of interest rates relation 
C)  is the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D)  A and B only. 
A)  is the shortest-term rate available 
B)  forms the base of any term structure of interest rates relation 
C)  is the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D)  A and B only.

Question 4

The Bank of Canada neutralizes SRA operations so as to ________.

Accepted Answer

A)  not to leave the system in a surplus position at the end of the day 
B)  to leave the system in a surplus position at the end of the day 
C)  as not to leave the system in a deficit position at the end of the day 
D)  as to leave the system in a deficit position at the end of the day 
A)  not to leave the system in a surplus position at the end of the day 
B)  to leave the system in a surplus position at the end of the day 
C)  as not to leave the system in a deficit position at the end of the day 
D)  as to leave the system in a deficit position at the end of the day

Question 5

The Bank of Canada ________ conducting open market operations in Government of Canada treasury bills and bonds in 1994.

Accepted Answer

A)  started 
B)  stopped 
C)  continued 
D)  implemented 
A)  started 
B)  stopped 
C)  continued 
D)  implemented

Question 6

If the operating target of the Bank of Canada is 4.5 percent then the bank rate is ________.

Accepted Answer

A)  4.75 percent 
B)  5.25 percent 
C)  4.25 percent 
D)  4.5 percent 
A)  4.75 percent 
B)  5.25 percent 
C)  4.25 percent 
D)  4.5 percent

Question 7

The channel/corridor system for setting interest rates ________.

Accepted Answer

A)  is not appropriate for Canadian monetary policy 
B)  limits the amount banks can borrow from the central bank 
C)  enables the central bank to set the overnight, policy rate 
D)  is being phased out as a monetary policy tool 
A)  is not appropriate for Canadian monetary policy 
B)  limits the amount banks can borrow from the central bank 
C)  enables the central bank to set the overnight, policy rate 
D)  is being phased out as a monetary policy tool

Question 8

What are the advantages and disadvantages of the Bank's lending policy?

Accepted Answer

The most important advantage is that the

Question 9

Explain the Bank of Canada's open market operations? What are SPRAs and SRAs? How are they used to impact the overnight rate?

Accepted Answer

SPRA is special Purchase and Resale Agre

Question 10

The Bank of Canada will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system.

Accepted Answer

A)  increase; permanently 
B)  increase; temporarily 
C)  decrease; temporarily 
D)  decrease; permanently 
A)  increase; permanently 
B)  increase; temporarily 
C)  decrease; temporarily 
D)  decrease; permanently

Question 11

If the Bank of Canada wants to relieve undesired upward pressure on the overnight interest rate it will enter into a ________.

Accepted Answer

A)  Resale Agreement 
B)  Sale and Repurchase Agreement 
C)  Swap 
D)  Repo 
A)  Resale Agreement 
B)  Sale and Repurchase Agreement 
C)  Swap 
D)  Repo

Question 12

The risk to the entire payments system due to the inability of one financial institution to fulfill its payment obligations in a timely fashion is known as ________.

Accepted Answer

A)  systemic risk 
B)  the principal-agent problem 
C)  moral hazard 
D)  credit risk 
A)  systemic risk 
B)  the principal-agent problem 
C)  moral hazard 
D)  credit risk

Question 13

If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the bank rate is ________.

Accepted Answer

A)  4 percent 
B)  3.75 percent 
C)  3.25 percent 
D)  4.5 percent 
A)  4 percent 
B)  3.75 percent 
C)  3.25 percent 
D)  4.5 percent

Question 14

If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________.

Accepted Answer

A)  a repurchase agreement 
B)  a sale and repurchase agreement 
C)  a "pump" agreement 
D)  None of the above. 
A)  a repurchase agreement 
B)  a sale and repurchase agreement 
C)  a "pump" agreement 
D)  None of the above.

Question 15

The Large Value Transfer System (LVTS) ________.

Accepted Answer

A)  was introduced on February 4, 1999 
B)  is the core of the Canadian payments system 
C)  is an electronic net settlement network designed to provide settlement to paper-based payments items 
D)  A and B only. 
A)  was introduced on February 4, 1999 
B)  is the core of the Canadian payments system 
C)  is an electronic net settlement network designed to provide settlement to paper-based payments items 
D)  A and B only.

Question 16

The purchase of private sector assets by the central bank in critical markets is known as ________.

Accepted Answer

A)  quantitative easing 
B)  conditional statements about the future path of the policy rate 
C)  managing interest rate expectations 
D)  credit easing 
A)  quantitative easing 
B)  conditional statements about the future path of the policy rate 
C)  managing interest rate expectations 
D)  credit easing

Question 17

If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________.

Accepted Answer

A)  a repurchase agreement 
B)  a sale and repurchase agreement 
C)  a "pump" agreement 
D)  None of the above. 
A)  a repurchase agreement 
B)  a sale and repurchase agreement 
C)  a "pump" agreement 
D)  None of the above.

Question 18

Quantitative easing is a high-risk monetary policy tool as it runs the risk of ________.

Accepted Answer

A)  possibly creating deflation 
B)  possibly creating inflation and even hyperinflation 
C)  having no effect 
D)  having very short-term effects 
A)  possibly creating deflation 
B)  possibly creating inflation and even hyperinflation 
C)  having no effect 
D)  having very short-term effects

Question 19

The facility at which banks can borrow reserves from the Bank of Canada is called the ________.

Accepted Answer

A)  standing lending facility 
B)  temporary lending facility 
C)  permanent lending facility 
D)  daily lending facility 
A)  standing lending facility 
B)  temporary lending facility 
C)  permanent lending facility 
D)  daily lending facility

Question 20

The target for settlement balances is set at ________.

Accepted Answer

A)  zero with no adjustments for any pressures on the overnight rate 
B)  zero but the Bank makes adjustments depending on pressures on the overnight rate 
C)  zero but the Bank makes adjustments depending on pressures on the prime rate 
D)  always positive with no adjustments 
A)  zero with no adjustments for any pressures on the overnight rate 
B)  zero but the Bank makes adjustments depending on pressures on the overnight rate 
C)  zero but the Bank makes adjustments depending on pressures on the prime rate 
D)  always positive with no adjustments

Exam 16: Tools of Monetary Policy

The Bank of Canada's lender-of-last-resort function ________.

The primary indicator of the stance of monetary policy in the U.S. is the ________.

The overnight interest rate ________.

The Bank of Canada neutralizes SRA operations so as to ________.

The Bank of Canada ________ conducting open market operations in Government of Canada treasury bills and bonds in 1994.

If the operating target of the Bank of Canada is 4.5 percent then the bank rate is ________.

The channel/corridor system for setting interest rates ________.

What are the advantages and disadvantages of the Bank's lending policy?

Explain the Bank of Canada's open market operations? What are SPRAs and SRAs? How are they used to impact the overnight rate?

The Bank of Canada will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system.

If the Bank of Canada wants to relieve undesired upward pressure on the overnight interest rate it will enter into a ________.

The risk to the entire payments system due to the inability of one financial institution to fulfill its payment obligations in a timely fashion is known as ________.

If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the bank rate is ________.

If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________.

The Large Value Transfer System (LVTS) ________.

The purchase of private sector assets by the central bank in critical markets is known as ________.

If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________.

Quantitative easing is a high-risk monetary policy tool as it runs the risk of ________.

The facility at which banks can borrow reserves from the Bank of Canada is called the ________.

The target for settlement balances is set at ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

The Bank of Canada will engage in a repurchase agreement when it wants to reserves in the banking system.