Question

Which of the following is a FALSE statement regarding the Bank of Canada and monetary​ policy?

A.

The overnight loans rate and the Treasury bill rate move closely together.

B.

When the Bank of Canada sells​ securities, the interest rate rises and the Bank of​ Canada's assets and liabilities both decrease.

C.

The Bank of​ Canada's operating band is the target overnight rate plus or minus 0.25 percentage points.

D.

The Bank rate is always lower than the overnight​ loan's rate.

E.

The Bank of Canada Act places responsibility for the conduct of monetary policy on the​ Bank's Governing Council.

Answer 1

Statement A: The overnight loans rate and the Treasury bill rate move closely together are true.

Statement B is true that is when the Bank of Canada sells securities, the interest rate rises and the Bank of​Canada’s assets and liabilities both decrease. Assets and liabilities increase when Bank of Canada buys securities and reserve also gets increased.

Statement C: The Bank of​Canada’s operating band is the target overnight rate plus or minus 0.25 percentage points is also true. Operating band is 0.5 % points wide. By setting Bank rate and settlement balances rate, operating bands are created.

Statement D: The Bank rate is always lower than the overnight​loan’s rate is false because the Bank Rate is still at the top. Interest rate paid by the largest banks to borrow money on a single-day basis is called the overnight rate.

Statement E: The Bank of Canada Act places responsibility for the conduct of monetary policy on the​Bank’s Governing Council is true. Government of Canada and Bank of Canada jointly agree on monetary policy but act places responsibility for the conduct of monetary policy on the​ Bank’s Governing Council.

Statement D is only False.