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- Describe some of the actions the Bank of Canada took to mitigate the effects of widening
spreads and increased volatility in the term interbank market in the second half of 2008.
Answer: The Bank of Canada announced that it would enter into a series 28-day PRA
transactions, thereby injecting huge amounts of liquidity in the markets. Moreover, the Bank
expanded its list of acceptable collateral to include bank-sponsored asset-backed commercial
paper and U.S. Treasuries. It also expanded its list of eligible counterparties. In engaging in these
trades, the Bank takes securities onto its books in exchange for borrowings from the Bank's
standing lending facility.
Diff: 3 Type: SA Page Ref: 428
Skill: Recall
Objective List: 17.3 Identify the Bank of Canada's approach to monetary policy and the tools of
policy
17.8 Monetary Policy Tools of the Federal Reserve and the European Central Bank
The Federal Reserve's lending of reserves to banks is called ____ lending.
A) discount window
B) term
C) prime
D) target
Answer: A
Diff: 1 Type: MC Page Ref: 429
Skill: Recall
Objective List: 17.3 Identify the Bank of Canada's approach to monetary policy and the tools of
policy
The lending facility at the Federal Reserve sets a ____ on the short-term overnight
interest rates.
A) ceiling
B) floor
C) target
D) ceiling and floor
Answer: A
Diff: 1 Type: MC Page Ref: 429
Skill: Recall
Objective List: 17.3 Identify the Bank of Canada's approach to monetary policy and the tools of
policy