Question 1

What is the service provided by the LVTS? why is it important?

Accepted Answer

The LVTS is an electronic,real-time net settlement network,designed to provide immediate finality and settlement to time-critical transactions.There are fourteen LVTS participants and all other members of the Canadian Payments Association are able to arrange LVTS payments for their clients through the LVTS participants.The importance of the LVTS is that it eliminates systemic risk-the risk to the entire payments system due to the inability of one financial institution to fulfill its payment obligations in a timely fashion.

Question 2

In the market for reserves,market equilibrium occurs where the ________.

Accepted Answer

A)  quantity of reserves demanded equals the quantity supplied 
B)  quantity of reserves demanded is above the quantity supplied 
C)  quantity of reserves demanded is below the quantity supplied 
D)  quantity of reserves demanded does not equal the quantity supplied 
A)  quantity of reserves demanded equals the quantity supplied 
B)  quantity of reserves demanded is above the quantity supplied 
C)  quantity of reserves demanded is below the quantity supplied 
D)  quantity of reserves demanded does not equal the quantity supplied A

Question 3

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 Agreement and SRA is a Sale and Repurchase Agreement.SPRAS are used to relieve undesired upward pressure on the overnight interest rate.SRAs alleviated undesired downward pressure on the overnight financing rate. Both are temporary measures.

Question 4

The lending facility at the Federal Reserve sets a ________ on the short-term overnight interest rates.

Accepted Answer

A)  ceiling 
B)  floor 
C)  target 
D)  ceiling and floor 
A)  ceiling 
B)  floor 
C)  target 
D)  ceiling and floor

Question 5

The European Central bank uses the ________ to signal its stance on monetary policy.

Accepted Answer

A)  target financing rate 
B)  overnight cash rate 
C)  overnight bank rate 
D)  discount window 
A)  target financing rate 
B)  overnight cash rate 
C)  overnight bank rate 
D)  discount window

Question 6

If LVTS participating financial institutions have insufficient settlement balances ________.

Accepted Answer

A)  they can borrow from each other in the pre-settlement trading period 
B)  they can borrow from the Bank of Canada 
C)  they can borrow from the Bank of Canada at the prime rate 
D)  Only A and B of the above. 
A)  they can borrow from each other in the pre-settlement trading period 
B)  they can borrow from the Bank of Canada 
C)  they can borrow from the Bank of Canada at the prime rate 
D)  Only A and B of the above.

Question 7

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

Accepted Answer

A)  a repurchase agreement 
B)  a "swap" transaction 
C)  a reverse repurchase agreement 
D)  None of the above. 
A)  a repurchase agreement 
B)  a "swap" transaction 
C)  a reverse repurchase agreement 
D)  None of the above.

Question 8

Sale and Repurchase Agreements ________.

Accepted Answer

A)  relieve undesired upward pressure on the overnight interest rate 
B)  alleviate undesired downward pressure on the overnight financing rate 
C)  relieve undesired downward pressure on the overnight interest rate 
D)  alleviate undesired volatility in the overnight financing rate 
A)  relieve undesired upward pressure on the overnight interest rate 
B)  alleviate undesired downward pressure on the overnight financing rate 
C)  relieve undesired downward pressure on the overnight interest rate 
D)  alleviate undesired volatility in the overnight financing rate

Question 9

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

Accepted Answer

A)  a repurchase agreement 
B)  a "swap" transaction 
C)  a reverse repurchase agreement 
D)  None of the above. 
A)  a repurchase agreement 
B)  a "swap" transaction 
C)  a reverse repurchase agreement 
D)  None of the above.

Question 10

In Canada,the market for settlement balances (reserves)is where ________.

Accepted Answer

A)  the federal funds rate is determined 
B)  the overnight interest rate is determined 
C)  the discount rate is determined 
D)  LIBOR is determined 
A)  the federal funds rate is determined 
B)  the overnight interest rate is determined 
C)  the discount rate is determined 
D)  LIBOR is determined

Question 11

If the Bank of Canada wants to alleviate undesired downward pressure on the overnight financing rate it will enter into a ________.

Accepted Answer

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

Question 12

If government deposits at the Bank of Canada are predicted to increase,the manager of the trading desk at the Bank will likely conduct activities to ________ reserves.

Accepted Answer

A)  inject 
B)  drain 
C)  reverse 
D)  flood 
A)  inject 
B)  drain 
C)  reverse 
D)  flood

Question 13

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 14

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

Accepted Answer

The most important advantage is that the

Question 15

One of the Bank of Canada's most important roles is to be ________.

Accepted Answer

A)  the Federal government's banker 
B)  the issuer of government debt 
C)  a lender-of-last-resort 
D)  a regulator of banks 
A)  the Federal government's banker 
B)  the issuer of government debt 
C)  a lender-of-last-resort 
D)  a regulator of banks

Question 16

The goal of the Bank of Canada's current monetary policy is to keep the inflation rate within a target range of ________.

Accepted Answer

A)  2 percent to 3 percent 
B)  1 percent to 3 percent 
C)  1 percent to 4 percent 
D)  2 percent to 4 percent 
A)  2 percent to 3 percent 
B)  1 percent to 3 percent 
C)  1 percent to 4 percent 
D)  2 percent to 4 percent

Question 17

The ACSS is operated by the ________.

Accepted Answer

A)  Canadian Payments Association 
B)  Bank of Canada 
C)  Ministry of Finance 
D)  LVTS 
A)  Canadian Payments Association 
B)  Bank of Canada 
C)  Ministry of Finance 
D)  LVTS

Question 18

What is the operating band for the overnight interest rate?

Accepted Answer

The Bank of Canada implements monetary p

Question 19

The overnight market in Canada is ________ with a ________ range of participants.

Accepted Answer

A)  very liquid; broad 
B)  very liquid; narrow 
C)  not very liquid; broad 
D)  not very liquid; narrow 
A)  very liquid; broad 
B)  very liquid; narrow 
C)  not very liquid; broad 
D)  not very liquid; narrow

Question 20

The difference between Term PRAs and special PRAs,is that term PRAs have ________.

Accepted Answer

A)  a term shorter than one business day, typically a term of 2 hours 
B)  a term longer than one business day, typically a term of 28 business days 
C)  a term longer than year, typically a term of 3 years 
D)  a term longer than one business day, typically a term of 6 months 
A)  a term shorter than one business day, typically a term of 2 hours 
B)  a term longer than one business day, typically a term of 28 business days 
C)  a term longer than year, typically a term of 3 years 
D)  a term longer than one business day, typically a term of 6 months

Exam 17: Tools of Monetary Policy

What is the service provided by the LVTS? why is it important?

In the market for reserves,market equilibrium occurs where the ________.

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

The lending facility at the Federal Reserve sets a ________ on the short-term overnight interest rates.

The European Central bank uses the ________ to signal its stance on monetary policy.

If LVTS participating financial institutions have insufficient settlement balances ________.

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

Sale and Repurchase Agreements ________.

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

In Canada,the market for settlement balances (reserves)is where ________.

If the Bank of Canada wants to alleviate undesired downward pressure on the overnight financing rate it will enter into a ________.

If government deposits at the Bank of Canada are predicted to increase,the manager of the trading desk at the Bank will likely conduct activities to ________ reserves.

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

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

One of the Bank of Canada's most important roles is to be ________.

The goal of the Bank of Canada's current monetary policy is to keep the inflation rate within a target range of ________.

The ACSS is operated by the ________.

What is the operating band for the overnight interest rate?

The overnight market in Canada is ________ with a ________ range of participants.

The difference between Term PRAs and special PRAs,is that term PRAs have ________.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

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

The ISLM Model

Filters

The overnight market in Canada is with a range of participants.