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© 2014 Pearson Canada Inc.#17.2 The Market for Settlement Balances and the Channel/Corridor System for Setting the
Overnight Interest Rate
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
Answer: B
Diff: 1 Type: MC Page Ref: 408
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada
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
Answer: A
Diff: 3 Type: MC Page Ref: 410
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada
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.
Answer: A
Diff: 3 Type: MC Page Ref: 410
Skill: Recall
Objective List: 17.2 Explain the market for reserves and the channel/corridor system for setting
the overnight interest rate in Canada