Multiple Choice
The current overnight loans rate is 3 percent, with the Bank of Canada's operating band set at 2.75 to 3.25 percent.If the Bank of Canada lowers their operating band to 2.25 to 2.75 percent, which of the following is one of the reasons the overnight rate will fall to within this new range?
A) Since the banking system can now earn 2.75 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent.
B) Since the banking system can now borrow from the Bank of Canada at 2.75 percent, no bank would borrow on the overnight loan market at 3 percent.
C) Since the banking system can now borrow from the Bank of Canada at 2.25 percent, no bank would borrow on the overnight loan market at 3 percent.
D) There is a legal requirement that the overnight rate must be within the Bank of Canada's operating band.
E) Since the banking system can now earn 2.25 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent.
Correct Answer:
Verified
Correct Answer:
Verified
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