EC Chapter 17
1) The facility at which banks can borrow reserves from the Bank of Canada is called the ________. A) standing lending facility B) temporary lending facility C) permanent lending facility D) daily lending facility
A
14) The overnight market in Canada is ________ with a ________ range of participants. A) very liquid; broad B) very liquid; narrow C) not very liquid; broad D) not very liquid; narrow
A
19) 45 basis points is equal to ________. A) 0.45 percent B) 0.045 percent C) 4.5 percent D) 45 percent
A
23) If the operating target of the Bank of Canada is 4.5 percent then the bank rate is ________. A) 4.75 percent B) 5.25 percent C) 4.25 percent D) 4.5 percent
A
28) 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 ________. A) 3.25 percent B) 3.75 percent C) 3 percent D) 4 percent
A
3) Core CPI excludes ________. A) volatile components B) headline items C) indirect taxes D) energy costs
A
3) The LVTS was put in place in order to eliminate the ________. A) systemic risk B) principal-agent problem C) moral hazard problem D) credit risk
A
3) The market equilibrium, in which the quantity of reserves demanded equals the quantity of reserves supplied ________. A) determines the overnight rate B) occurs at the intersection of the vertical supply curve and the demand curve at the Bank of Canada's target level of reserves C) determines the interest rate charged on loans of these reserves D) All of the above.
A
30) At the end of each banking day, each LVTS participant must bring its settlement balance with the Bank of Canada ________. A) close to zero B) to a positive balance C) to a negative balance D) to at least $1 million
A
6) A repo is a ________. A) Resale Agreement B) Purchase and Resale Agreement C) Swap D) Repo
B
6) The difference between Term PRAs and special PRAs, is that term PRAs have ________. 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
B
7) If government deposits at the Bank of Canada are predicted to decrease the Bank will offset the transaction through LVTS transfers to ________ settlement balances. A) increase B) decrease C) flood D) inject
B
9) A reverse repo is a ________. A) Special Purchase and Resale Agreement B) Sale and Repurchase Agreement C) Swap D) Repo
B
40) The rate spread at the Bank of Canada for LVTS balances is ________. A) 300 basis points B) 200 basis points C) 50 basis points D) 25 basis points
C
5) The Bank of Canada neutralizes SRA operations so as to ________. 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) as not to leave the system in a deficit position at the end of the day D) as to leave the system in a deficit position at the end of the day
C
7) Large Value Transfer System (LVTS) participants can make a payment only if they ________. 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.
D
8) The Large Value Transfer System (LVTS) ________. 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.
D
1) The purchase of financial assets by the central bank through the creation of excess reserves for banks is known as ________. A) quantitative easing B) conditional statements about the future path of the policy rate C) interest rate expectations D) credit easing
A
10) Multilateral netting is ________. A) the netting of the credit or debit position of each participant vis-à-vis all other participants B) an electronic net settlement network designed to provide settlement to paper-based payment items C) the netting of the forward position of LVTS participants D) None of the above.
A
11) If the Bank of Canada wants to temporarily inject reserves in the banking system, it will engage in ________. A) a repurchase agreement B) a "swap" transaction C) a reverse repurchase agreement D) None of the above.
A
12) The ACSS is operated by the ________. A) Canadian Payments Association B) Bank of Canada C) Ministry of Finance D) LVTS
A
15) SPRAs and SRAs are ________ open market operations. A) temporary B) permanent C) risky D) conducted 8 times a year
A
17) If the Bank of Canada wants to temporarily inject reserves in the banking system, it will engage in ________. A) a repurchase agreement B) a "swap" transaction C) a reverse repurchase agreement D) None of the above.
A
4) If the Bank of Canada expects the economy to slow down, it ________ the operating band for the overnight interest rate. A) lowers B) raises C) leaves unchanged D) stabilizes
A
1) In Canada, the market for settlement balances (reserves) is where ________. A) the federal funds rate is determined B) the overnight interest rate is determined C) the discount rate is determined D) LIBOR is determined
B
1) In addition to targeting the overnight interest rate at the mid-point of the operating band, the Bank of Canada also targets ________. A) the prime rate B) the level of settlement balances C) the treasury bill rate D) the money multiplier
B
1) The Bank of Canada ________ conducting open market operations in Government of Canada treasury bills and bonds in 1994. A) started B) stopped C) continued D) implemented
B
1) The goal of the Bank of Canada's current monetary policy is to keep the inflation rate within a target range of ________. A) 2 percent to 3 percent B) 1 percent to 3 percent C) 1 percent to 4 percent D) 2 percent to 4 percent
B
12) If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________. A) a repurchase agreement B) a sale and repurchase agreement C) a "pump" agreement D) None of the above.
B
14) The Bank of Canada will engage in a repurchase and resale agreement when it wants to ________ reserves ________ in the banking system. A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently
B
16) The target for the overnight interest rate is also known as the ________. A) the bank rate B) the policy rate C) reference rate D) the growth rate of M2
B
17) The primary indicator of the Bank of Canada's stance on monetary policy is ________. A) the bank rate B) the overnight rate C) the growth rate of the monetary base D) the growth rate of M2
B
18) If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________. A) a repurchase agreement B) a sale and repurchase agreement C) a "pump" agreement D) None of the above.
B
19) The Bank of Canada will engage in a repurchase agreement when it wants to ________ reserves ________ in the banking system. A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently
B
9) The channel/corridor system for setting interest rates ________. 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
C
18) The overnight rate is important because it is ________. A) the primary indicator of the Bank of Canada's stance on monetary policy B) the interest rate paid on federal debt C) the interest rate charged on government loans D) Both A and C of the above.
A
2) A standing lending facility is ________. A) the facility at which banks can borrow reserves from the Bank of Canada B) a temporary lending facility C) a permanent lending facility D) a daily lending facility
A
2) 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. A) inject B) drain C) reverse D) flood
A
2) In the market for settlement balances, when the overnight interest rate is below the bank rate and above the bank rate less 50 basis points, the supply curve of reserves is ________. A) vertical B) horizontal C) positively sloped D) negatively sloped
A
2) Monetary conditions are impacted by ________. 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
20) Changes to the operating band are announced by the Bank of Canada ________ times a year. A) eight B) six C) four D) two
A
21) The Bank of Canada's operating band is ________ basis points or ________. A) 50; 0.5 percent B) 100; 1 percent C) 50; 5 percent D) 100; 10 percent
A
24) If the operating target of the Bank of Canada is 4 percent then the bank rate is ________. A) 4.25 percent B) 4.50 percent C) 3.5 percent D) 4 percent
A
25) If the Bank of Canada pays on deposits to LVTS participants an interest rate of 3.5 percent then the bank rate is ________. A) 4 percent B) 3.75 percent C) 3.25 percent D) 4.5 percent
A
26) 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 ________. A) 3.75 percent B) 4 percent C) 3.25 percent D) 3 percent
A
27) 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 ________. 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) Special Purchase and Resale Agreements ________. 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
34) The operating band for the overnight interest rate is ________. A) 50 basis points wide B) defines the rate of interest the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day C) defines the rate of interest the Bank of Canada pays LVTS participants with negative settlement balances at the end of the banking day D) Both A and B of the above.
A
4) If the Bank of Canada wants to relieve undesired upward pressure on the overnight interest rate it will enter into a ________. A) Special Purchase and Resale Agreement B) Sale and Repurchase Agreement C) Swap D) Reverse Repo
A
4) The Bank of Canada neutralizes special PRA operations so as to ________. 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
4) 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 ________. A) systemic risk B) the principal-agent problem C) moral hazard D) credit risk
A
5) Although transactions in the LVTS account for less than ________ of the total number of transactions, they account for about ________ of the value of transactions. A) 1 percent; 94 percent B) 5 percent; 90 percent C) 10 percent; 85 percent D) 20 percent; 80 percent
A
5) The Bank of Canada uses the ________ as its operating instrument. A) nominal interest rate B) real interest rate C) open market operations D) federal funds rate
A
6) It is the ________ assumption of ________ that allows for the transmission between nominal and real interest rates. A) new Keynesian; sticky prices B) monetarist; sticky prices C) new Keynesian; perfect markets D) Bank of Canada; chartered banks allegiance to Canadian monetary policy
A
6) The Bank of Canada neutralizes government receipts by ________. A) arranging an increase in government deposit auctions B) leaving the system in a surplus position at the end of the day C) reducing the banking system's settlement balances D) leaving the system in a deficit position at the end of the day
A
8) In the market for reserves, market equilibrium occurs where the ________. 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
8) To keep inflation from falling below the target range, the Bank of Canada ________. 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
9) 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. A) decrease B) increase C) inject D) resupply
A
9) Where only the net credit or debit position of each participant vis-à-vis all other participants is calculated is known as ________. A) multilateral netting B) principal-agent netting C) moral hazard netting D) credit risk netting
A
2) The Bank of Canada most common operations have been repurchase transactions with ________. A) stockbrokers B) primary dealers C) the public D) other central banks
B
3) Quantitative easing is regarded as ________. A) the price of liquidity B) a high-risk monetary policy tool C) a low-risk monetary policy tool D) a desired policy
B
3) The target for settlement balances is set at ________. 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
4) Quantitative easing is a high-risk monetary policy tool as it runs the risk of ________. A) possibly creating deflation B) possibly creating inflation and even hyperinflation C) having no effect D) having very short-term effects
B
7) If the Bank of Canada expects the economy to to be exceeding its capacity, it ________ the operating band for the overnight interest rate. A) lowers B) raises C) leaves unchanged D) stabilizes
B
7) Sale and Repurchase Agreements ________. 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
B
7) 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 ________. A) quantitative easing B) conditional statements about the future path of the policy rate C) interest rate expectations D) credit easing
B
8) If government deposits at the Bank of Canada are predicted to increase, the Bank will offset the transaction through government debt auctions to ________ settlement balances. A) decrease B) increase C) inflate D) drain
B
8) If the Bank of Canada wants to alleviate undesired downward pressure on the overnight financing rate it will enter into a ________. A) Special Purchase and Resale Agreement B) Sale and Repurchase Agreement C) Swap D) Repo
B
11) The Automated Clearing Settlement System (ACSS) ________. 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.
C
13) The Automated Clearing Settlement System (ACSS) ________. A) was introduced on February 4, 1999 B) is an electronic net settlement network designed to provide settlement to wholesale transactions C) aggregates interbank payments and informs the Bank of Canada of the net amounts to be transferred from and to each participant's settlement account with the Bank of Canada D) Only A and B of the above.
C
13) The Bank of Canada will engage in a sale and repurchase agreement when it wants to ________ reserves ________ in the banking system. A) increase; permanently B) increase; temporarily C) decrease; temporarily D) decrease; permanently
C
15) The overnight interest rate is also known as the ________. A) the bank rate B) the policy rate C) reference rate D) the growth rate of M2
C
2) Quantitative easing is regarded as an unconventional form of monetary policy because it targets the ________. A) the price of liquidity B) the overnight interest rate C) the amount of liquidity provided by the central bank instead of targeting the price of liquidity D) settlement balances
C
29) The lower limit of the operating band for the overnight interest rate defines ________. A) the bank rate B) the prime rate C) the rate the Bank of Canada pays LVTS participants with positive settlement balances at the end of the banking day D) the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day
C
3) One of the Bank of Canada's most important roles is to be ________. A) the Federal government's banker B) the issuer of government debt C) a lender-of-last-resort D) a regulator of banks
C
39) LVTS participants with positive settlement balances at the end of the day ________. 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
C
4) The Bank of Canada's lender-of-last-resort function ________. 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.
C
7) A rise in the overnight rate ________. A) decreases the opportunity cost of holding desired reserves B) lowers the opportunity cost of holding desired reserves C) increases the opportunity cost of holding excess reserves D) lowers the opportunity cost of holding excess reserves
C
1) The interest rate on loans of reserves from one bank to another is ________. A) the bank rate B) the fed funds rate C) the discount rate D) the overnight rate
D
10) If the Bank of Canada wants to alleviate undesired downward pressure on the overnight financing rate it will enter into a ________. A) Purchase and Resale Agreement B) Repurchase Agreement C) Swap D) Reverse Repo
D
16) The Bank of Canada's repurchase transactions are an advantage because ________. A) they occur at the initiative of the Bank of Canada B) the bank has complete control over the volume C) they are monopolized by the Bank of Canada D) Only A and B of the above.
D
2) The overnight rate is ________. A) the interest rate on loans from the Bank of Canada B) also know as the Bank rate C) the rate banks give their best customers D) the interest rate on loans of reserves from one bank to another
D
22) The overnight interest rate ________. 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) Only A and B of the above.
D
31) The lower limit of the operating band for the overnight interest rate is ________. 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.
D
32) If the operating band for the overnight interest rate is from 3.5 to 4.0 percent, then ________. 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) Both A and C of the above.
D
33) If the operating band for the overnight interest rate is from 3.5 to 4.0 percent, then ________. A) the rate on positive settlement balances at the Bank of Canada is 3.5 percent B) the rate on positive settlement balances at the Bank of Canada is the lower limit of the operating band C) the bank rate is the lower limit of the operating band. D) Both A and B of the above.
D
35) Standing facilities ________. 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
D
36) When the Bank of Canada lowers the operating band for the overnight interest rate, it ________. A) lowers the bank rate by the same amount B) encourages LVTS participants to borrow reserves either from each other or from the Bank of Canada C) it reduces the monetary base and ultimately the money supply D) Only A and B of the above.
D
37) If LVTS participating financial institutions have insufficient settlement balances ________. A) they can borrow from each other in the pre-settlement trading period at the bank rate B) they can borrow from each other in the pre-settlement trading period at the overnight rate C) they can borrow from the Bank of Canada D) Only B and C of the above.
D
38) If LVTS participating financial institutions have insufficient settlement balances ________. 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.
D
4) When the overnight rate is up to 50 basis points below the bank rate ________. 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
D
5) If the Bank of Canada wants to relieve undesired upward pressure on the overnight interest rate it will enter into a ________. A) Resale Agreement B) Sale and Repurchase Agreement C) Swap D) Repo
D
5) The purchase of private sector assets by the central bank in critical markets is known as ________. A) quantitative easing B) conditional statements about the future path of the policy rate C) managing interest rate expectations D) credit easing
D
5) The quantity of reserves demanded rises when the ________. A) bank rate rises B) bank rate falls C) overnight funds rate rises D) overnight rate falls
D
6) The Large Value Transfer System (LVTS) ________. A) was introduced on February 4, 1999 B) is the core of the Canadian payments system C) is an electronic net settlement network designed to provide settlement to paper-based payments items D) Only A and B of the above.
D
6) The opportunity cost of holding excess reserves is ________. A) the bank rate B) the prime rate C) the treasury bill rate D) the overnight rate
D
