Question 1

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 2

Standing facilities ________.

Accepted Answer

A)  refers to participant borrowing form each other to bring their settlement balances to zero at the end of the banking day 
B)  refers to the Bank of Canada refusal to lend to or borrow from a participant to bring their settlement balances to zero at the end of the banking day 
C)  refers to the Bank of Canada's building in Ottawa 
D)  refers to the Bank of Canada being ready to lend to or borrow from a participant to bring their settlement balances to zero at the end of the banking day 
A)  refers to participant borrowing form each other to bring their settlement balances to zero at the end of the banking day 
B)  refers to the Bank of Canada refusal to lend to or borrow from a participant to bring their settlement balances to zero at the end of the banking day 
C)  refers to the Bank of Canada's building in Ottawa 
D)  refers to the Bank of Canada being ready to lend to or borrow from a participant to bring their settlement balances to zero at the end of the banking day

Question 3

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)  Both A and B of the above. 
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)  Both A and B of the above.

Question 4

The rate spread at the Bank of Canada for LVTS balances is ________.

Accepted Answer

A)  300 basis points 
B)  200 basis points 
C)  50 basis points 
D)  25 basis points 
A)  300 basis points 
B)  200 basis points 
C)  50 basis points 
D)  25 basis points

Question 5

Core CPI excludes ________.

Accepted Answer

A)  volatile components 
B)  headline items 
C)  indirect taxes 
D)  energy costs 
A)  volatile components 
B)  headline items 
C)  indirect taxes 
D)  energy costs

Question 6

If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the operating target of the Bank's monetary policy is ________ and the bank rate is ________.

Accepted Answer

A)  3.75 percent; 4 percent 
B)  4 percent; 4.25 percent 
C)  3.25 percent; 3.5 percent 
D)  3 percent; 3.25 
A)  3.75 percent; 4 percent 
B)  4 percent; 4.25 percent 
C)  3.25 percent; 3.5 percent 
D)  3 percent; 3.25

Question 7

If the Bank of Canada charges for negative settlement balances to LVTS participants an interest rate of 3.5 percent then the operating target of the Bank's monetary policy is ________.

Accepted Answer

A)  3.25 percent 
B)  3.75 percent 
C)  3 percent 
D)  4 percent 
A)  3.25 percent 
B)  3.75 percent 
C)  3 percent 
D)  4 percent

Question 8

The Large Value Transfer System (LVTS)________.

Accepted Answer

A)  is the core of the Canadian payments system 
B)  is an electronic net settlement network designed to provide settlement to wholesale transactions 
C)  is an electronic net settlement network designed to provide settlement to paper-based payment items 
D)  Only A and B of the above. 
A)  is the core of the Canadian payments system 
B)  is an electronic net settlement network designed to provide settlement to wholesale transactions 
C)  is an electronic net settlement network designed to provide settlement to paper-based payment items 
D)  Only A and B of the above.

Question 9

In addition to targeting the overnight interest rate at the mid-point of the operating band,the Bank of Canada also targets ________.

Accepted Answer

A)  the prime rate 
B)  the level of settlement balances 
C)  the treasury bill rate 
D)  the money multiplier 
A)  the prime rate 
B)  the level of settlement balances 
C)  the treasury bill rate 
D)  the money multiplier

Question 10

Monetary conditions are impacted by ________.

Accepted Answer

A)  short-term interest rates and the foreign exchange rate 
B)  open market operations and the prime rate 
C)  the foreign exchange rate and the inflation rate 
D)  the Department of Finance 
A)  short-term interest rates and the foreign exchange rate 
B)  open market operations and the prime rate 
C)  the foreign exchange rate and the inflation rate 
D)  the Department of Finance

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 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 13

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 14

The Bank of Canada commitments regarding the operating band for the overnight interest rate to align market expectations of future short-term interest rates with those of the Bank are known as ________.

Accepted Answer

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

Question 15

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 16

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 17

The target for the overnight interest rate is also known as the ________.

Accepted Answer

A)  the bank rate 
B)  the policy rate 
C)  reference rate 
D)  the growth rate of M2 
A)  the bank rate 
B)  the policy rate 
C)  reference rate 
D)  the growth rate of M2

Question 18

SPRAs and SRAs are ________ open market operations.

Accepted Answer

A)  temporary 
B)  permanent 
C)  risky 
D)  conducted 8 times a year 
A)  temporary 
B)  permanent 
C)  risky 
D)  conducted 8 times a year

Question 19

At the end of each banking day,each LVTS participant must bring its settlement balance with the Bank of Canada ________.

Accepted Answer

A)  close to zero 
B)  to a positive balance 
C)  to a negative balance 
D)  to at least $1 million 
A)  close to zero 
B)  to a positive balance 
C)  to a negative balance 
D)  to at least $1 million

Question 20

What is the function of the ACSS?

Accepted Answer

The ACSS is an electronic payments syste

Exam 17: Tools of Monetary Policy

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 ________.

Standing facilities ________.

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

The rate spread at the Bank of Canada for LVTS balances is ________.

Core CPI excludes ________.

If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the operating target of the Bank's monetary policy is ________ and the bank rate is ________.

If the Bank of Canada charges for negative settlement balances to LVTS participants an interest rate of 3.5 percent then the operating target of the Bank's monetary policy is ________.

The Large Value Transfer System (LVTS)________.

In addition to targeting the overnight interest rate at the mid-point of the operating band,the Bank of Canada also targets ________.

Monetary conditions are impacted by ________.

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

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

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

The Bank of Canada commitments regarding the operating band for the overnight interest rate to align market expectations of future short-term interest rates with those of the Bank are 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 ________.

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

The target for the overnight interest rate is also known as the ________.

SPRAs and SRAs are ________ open market operations.

At the end of each banking day,each LVTS participant must bring its settlement balance with the Bank of Canada ________.

What is the function of the ACSS?

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

If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the operating target of the Bank's monetary policy is and the bank rate is .