Question 1

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 2

When the overnight rate is up to 50 basis points below the bank rate ________.

Accepted Answer

A) the supply curve of settlement balances has a positive slope 
B) the demand curve for settlement balances is vertical 
C) the demand curve for settlement balances is horizontal 
D) the demand curve for settlement balances has a negative slope 
A) the supply curve of settlement balances has a positive slope 
B) the demand curve for settlement balances is vertical 
C) the demand curve for settlement balances is horizontal 
D) the demand curve for settlement balances has a negative slope

Question 3

Large Value Transfer System (LVTS)participants can make a payment only if they ________.

Accepted Answer

A) have positive settlement balances in their accounts with the Bank of Canada 
B) have posted collateral (such as Government of Canada treasury bills and bonds) 
C) have explicit lines of credit with other participants 
D) All of the above. 
A) have positive settlement balances in their accounts with the Bank of Canada 
B) have posted collateral (such as Government of Canada treasury bills and bonds) 
C) have explicit lines of credit with other participants 
D) All of the above.

Question 4

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 5

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 6

If the operating band for the overnight interest rate is from 3.5 to 4.0 percent, then ________.

Accepted Answer

A) the bank rate is 4.0 percent 
B) the bank rate is the lower limit of the operating band 
C) the bank rate is the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D) A and C only. 
A) the bank rate is 4.0 percent 
B) the bank rate is the lower limit of the operating band 
C) the bank rate is the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D) A and C only.

Question 7

Special Purchase and Resale 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 8

The lower limit of the operating band for the overnight interest rate is ________.

Accepted Answer

A) the bank rate 
B) the prime rate 
C) the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D) 50 basis points below the bank rate 
A) the bank rate 
B) the prime rate 
C) the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day 
D) 50 basis points below the bank rate

Question 9

The Bank of Canada most common operations have been repurchase transactions with ________.

Accepted Answer

A) stockbrokers 
B) primary dealers 
C) the public 
D) other central banks 
A) stockbrokers 
B) primary dealers 
C) the public 
D) other central banks

Question 10

The Bank of Canada neutralizes special PRA 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) to leave the system changed 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) to leave the system changed at the end of the day 
D) as to leave the system in a deficit position at the end of the day

Question 11

LVTS participants with positive settlement balances at the end of the day ________.

Accepted Answer

A) are paid the bank rate 
B) are paid the overnight rate 
C) are paid the bank rate less 50 basis points 
D) are paid the prime rate 
A) are paid the bank rate 
B) are paid the overnight rate 
C) are paid the bank rate less 50 basis points 
D) are paid the prime rate

Question 12

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 ________.

Accepted Answer

A) 3)75 percent 
B) 4 percent 
C) 3)25 percent 
D) 3 percent 
A) 3)75 percent 
B) 4 percent 
C) 3)25 percent 
D) 3 percent

Question 13

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 14

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 15

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

Question 16

If government deposits at the Bank of Canada are predicted to decrease, the Bank will offset the transaction through government deposit auctions to ________ settlement balances.

Accepted Answer

A) decrease 
B) increase 
C) inject 
D) resupply 
A) decrease 
B) increase 
C) inject 
D) resupply

Question 17

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

Question 18

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 19

A repo is a ________.

Accepted Answer

A) Resale Agreement 
B) Purchase and Resale Agreement 
C) Swap 
D) Repo 
A) Resale Agreement 
B) Purchase and Resale Agreement 
C) Swap 
D) Repo

Question 20

A reverse repo is 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

Exam 16: Tools of Monetary Policy

The overnight interest rate ________.

When the overnight rate is up to 50 basis points below the bank rate ________.

Large Value Transfer System (LVTS)participants can make a payment only if they ________.

Sale and Repurchase Agreements ________.

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 operating band for the overnight interest rate is from 3.5 to 4.0 percent, then ________.

Special Purchase and Resale Agreements ________.

The lower limit of the operating band for the overnight interest rate is ________.

The Bank of Canada most common operations have been repurchase transactions with ________.

The Bank of Canada neutralizes special PRA operations so as to ________.

LVTS participants with positive settlement balances at the end of the day ________.

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 ________.

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

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

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

If government deposits at the Bank of Canada are predicted to decrease, the Bank will offset the transaction through government deposit auctions to ________ settlement balances.

The Large Value Transfer System (LVTS)________.

The channel/corridor system for setting interest rates ________.

A repo is a ________.

A reverse repo is a ________.

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

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