Question 1

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 B

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 A

Question 3

Describe some of the actions the Bank of Canada took to mitigate the effects of widening spreads and increased volatility in the term interbank market in the second half of 2008.

Accepted Answer

The Bank of Canada announced that it would enter into a series 28-day PRA transactions, thereby injecting huge amounts of liquidity in the markets. Moreover, the Bank expanded its list of acceptable collateral to include bank-sponsored asset-backed commercial paper and U.S. Treasuries. It also expanded its list of eligible counterparties. In engaging in these trades, the Bank takes securities onto its books in exchange for borrowings from the Bank's standing lending facility.

Question 4

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 5

Quantitative easing is regarded as ________.

Accepted Answer

A) the price of liquidity 
B) a high-risk monetary policy tool 
C) a low-risk monetary policy tool 
D) a desired policy 
A) the price of liquidity 
B) a high-risk monetary policy tool 
C) a low-risk monetary policy tool 
D) a desired policy

Question 6

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 7

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 8

Although transactions in the LVTS account for less than ________ of the total number of transactions, they account for about ________ of the value of transactions.

Accepted Answer

A) 1 percent; 94 percent 
B) 5 percent; 90 percent 
C) 10 percent; 85 percent 
D) 20 percent; 80 percent 
A) 1 percent; 94 percent 
B) 5 percent; 90 percent 
C) 10 percent; 85 percent 
D) 20 percent; 80 percent

Question 9

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) A and B only. 
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) A and B only.

Question 10

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 11

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 12

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

Accepted Answer

The LVTS is an electronic, real-time net

Question 13

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 14

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

Accepted Answer

The most important advantage is that the

Question 15

Where only the net credit or debit position of each participant vis-à-vis all other participants is calculated is known as ________.

Accepted Answer

A) multilateral netting 
B) principal-agent netting 
C) moral hazard netting 
D) credit risk netting 
A) multilateral netting 
B) principal-agent netting 
C) moral hazard netting 
D) credit risk netting

Question 16

To keep inflation from falling below the target range, the Bank of Canada ________.

Accepted Answer

A) decreases the target for the overnight rate which causes the dollar to go down 
B) decreases the target for the overnight rate which causes the dollar to go up 
C) increases the target for the overnight rate which causes the dollar to go down 
D) increases the target for the overnight rate which causes the dollar to go up 
A) decreases the target for the overnight rate which causes the dollar to go down 
B) decreases the target for the overnight rate which causes the dollar to go up 
C) increases the target for the overnight rate which causes the dollar to go down 
D) increases the target for the overnight rate which causes the dollar to go up

Question 17

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 18

Changes to the operating band are announced by the Bank of Canada ________ times a year.

Accepted Answer

A) eight 
B) six 
C) four 
D) two 
A) eight 
B) six 
C) four 
D) two

Question 19

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 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 16: Tools of Monetary Policy

The target for settlement balances is set at ________.

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

Describe some of the actions the Bank of Canada took to mitigate the effects of widening spreads and increased volatility in the term interbank market in the second half of 2008.

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 ________.

Quantitative easing is regarded as ________.

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

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

Although transactions in the LVTS account for less than ________ of the total number of transactions, they account for about ________ of the value of transactions.

If LVTS participating financial institutions have insufficient settlement balances ________.

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

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

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

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

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

Where only the net credit or debit position of each participant vis-à-vis all other participants is calculated is known as ________.

To keep inflation from falling below the target range, the Bank of Canada ________.

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.

Changes to the operating band are announced by the Bank of Canada ________ times a year.

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

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

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

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

Although transactions in the LVTS account for less than of the total number of transactions, they account for about of the value of transactions.