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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.
Answer: C
Diff: 2 Type: MC Page Ref: 422 - 423
Skill: Recall
Objective List: 17.3 Identify the Bank of Canada's approach to monetary policy and the tools of
policy
What are the advantages and disadvantages of the Bank's lending policy?
Answer: The most important advantage is that the Bank can use it to perform its role of lender
of last resort. But it is less effective compared to open market operations for two reasons. Open
market buyback operations are completely at the discretion of the Bank of Canada, whereas the
volume of normal advances is not. The Bank can change the bank rate but in the current
channel/corridor system can't make banks borrow. In addition, open market buyback operations
are more easily reversed than changes in Bank lending policy.
Diff: 3 Type: SA Page Ref: 423
Skill: Recall
Objective List: 17.3 Identify the Bank of Canada's approach to monetary policy and the tools of
policy