5 Flashcards
the Bank Rate
minimum rate at which BOC will lend money to Canadian Payments Association members in its role as lender of last recort. The bank rate is the upper limit of the operating band for overnight financing set by Bank of Canada (operating band is 50 bp wide)
quickest way for Bank of Canada to attempt to alter the external value of the Canadian dollar
currency market intervention (buying or selling CAD on the open market)
special purchase and resale agreements
SPRA’s are used to reduce overnight interest rates. When overnight money trades above the target of the operating band, BOC offers to lend at upper limit of the band. SPRA’s are one of two main open market operations used by BOC to conduct monetary policy (SRA’s the other).
sale and repurchase agreements
SRA’s are used to increase overnight interest rates. When overnight money trades below the target of the operating band, BOC offers to borrow at lower limit of the band. SRA’s are one of two main open market operations used by BOC to conduct monetary policy (SRA’s the other). SRA’s get market’s attention fast and smounts of SRA’s dealt tend to be small relative to SPRA’s.
bank of canada operating band
if bank rate is 3.5%, operating band is 3.0%-3.5%
large value transfer system
set up by BOC to facilitate payments between participating financial institutions and its cash management operations. LVTS helps to ensure overnight trading stays within the target band.
federal government drawdown
when deposits are transferred to feds’ BOC accounts from feds’ chartered banks’ accounts. This takes liquidity/cash balances out of the system and moves interest rates up.
federal government redeposit
when deposits are transferred from feds’ BOC accounts too feds’ chartered banks’ accounts. This increases funds in the system and moves interest rates down.
rational expectations theory of economy
firms and workers are rational and evaluate all consequences of government policy, so neutralizing its impact
keynesian theory of economy
active fiscal policy through government spending and taxation to stabilize business cycle
monetarist theory of economy
economy is inherently stable and will self-adjust to stable growth path. Advocate for no active fiscal or monetary policy other than expanding money supply at economy’s long-term growth rate
supply-side theory of economy
market should be left alone and government intervention minimal, only through tax rate changes.
bank of Canada role
monitor, regulate, control short-term interest rates AND external value of Canadian dollar
bank of Canada major functions
bank notes (issue/removal)
fiscal agent and financial advisor for federal government
monetary policy implementation
bank of Canada monetary policy
regulate growth in money supply and credit. Target range for inflation: 1-3%
