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financial systems > class 8 > Flashcards

class 8 Flashcards

1
Q

when was the central bank created?

A

it was created by the bank of Canada act in 1934 and started operating in 1935

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2
Q

when was the bank nationalized/ run by the government?

A

it was a private institutions until 1938

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3
Q

where is the bank of Canadas headquarters?

A

ottawa

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4
Q

where are the 6 regional offices of the bank of canada?

A

toronto
Montreal
vancouver
Calgary
Halifax
New York

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5
Q

who makes all of the rules and the budget for the bank of canada?

A

the board of directors, they meet once a quarter to discuss the rules of the bank and the BoC budget

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6
Q

how many directors does the board of directors for the bank of Canada consist of?

A

15

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7
Q

what makes up the 15 board members of the bank of Canadas board of directors?

A

1 governor (also the chief executive officer and chairman of the board of directors)

1 senior deputy governor

1 deputy minister of finance

12 outside directors

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8
Q

does the deputy minister of finance have a vote in the rules and budget of the bank of Canada?

A

no

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9
Q

how are the outside directors in the board of directors appointed?

A

they are appointed by the minister of finance with cabinet approval

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10
Q

how long is the term of the outside directors?

A

they are on a 3 year renewable term

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11
Q

can any other federal agency (dept of finance, dept of defence) make their own budget?

A

no, only the bank of canada is the only government agency that can create their own budget

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12
Q

how often does the board of directors appoint the governor and senior deputy governor?

A

the board appoints them with the approval from the government, and they have a renewable term for 7 years

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13
Q

when is the governing council of the bank of canada?

A

they are the group of people who run the bank and makes decisions on the economy like policy interest rate

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14
Q

how many people are in the governing council?

A

1 governor (chair)
1 senior deputy governor
4 deputy governors

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15
Q

how often does the governing council make decisions on the policy interest rate?

A

the make decisions on the overnight rate 8 times a year

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16
Q

what are the 4 functions of the bank of canada?

A

conduct monetary policy
maintain stability of the financial system
print and distribute currency
funds management for the federal government

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17
Q

what is the heart of monetary policies frame work?

A

inflation-control target

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18
Q

what is the target for inflation?

A

2% and the range is 1%-3%

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19
Q

when was the inflation-control target first introduced?

A

first introduced in 1991 and the target is set jointly by the bank of canada and the federal government and is renewed after every 5 years

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20
Q

how often is the inflation-control target renewed?

A

every 5 years

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21
Q

what is the bank of Canadas ultimate objective?

A

the keep inflation low, stable and predictable

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22
Q

what is an example of a monetary policy instrument?

A

the target for the overnight rate also know as the policy interest rate, this is an instrument that is used to conduct monetary policy

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23
Q

how often does the bank of canada announce its policy rate?

A

8 times a year

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24
Q

what is the policy rate?

A

the interest rate at which the banks can borrow from the bank of canada at

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25
Q

how will changing rate impact the economy?

A

when the bank of canada changes its policy rate it causes banks to change its commercial rate making it more or less expensive to borrow and either speeding up or slowing down the economy

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26
Q

how does the bank of canada achieve the inflation-control target?

A

the bank operates a system to make sure that trading in the overnight market stays within an operating band that is normally one half of a percentage point wideer than the target for the overnight rate

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27
Q

who makes the decision on the policy interest rate?

A

the governing council makes the final decision

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28
Q

who makes contributes to the final decision on monetary policy?

A

the monetary policy review committee and the four economic departments

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29
Q

what are the 4 economic departments that contribute to the final decision on monetary policy?

A

canadian economic analysis
international economic analysis
financial stability
financial market

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30
Q

what does the economic department “canadian economic analysis” do?

A

they look at Canadas economy and growth

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31
Q

what does the economic department “international economic analysis” do?

A

they look at other countries economies

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32
Q

what does the economic department “financial stability” do?

A

they maintain financial stability by monitoring banks and focus on how much consumer debt there is in canada and monitors mortgage rules

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33
Q

what does the economic department “financial market” do?

A

monitor stock, bond and housing markets but in Canada and internationally

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34
Q

what are the 5 stages in the decision on the policy interest rate?

A

presentation of the staff projection
the major briefing
the final policy recommendations
deliberation and decision by governing council
publication and communication

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35
Q

what is the stage “presentation of the staff projection” in the decision on the policy interest rate?

A

the governing council identifies and presents the base line of inflation and look at other scenarios and how it would impact the canadian economy to the monetary policy review committee

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36
Q

when does the stage “presentation of the staff projection” take place?

A

2.5 weeks before they make the final decision

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37
Q

what is the stage “the major briefing” in the decision on the policy interest rate?

A

the governing council reviews the impact of their decision on markets and on the economy as the whole

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38
Q

when does the stage “the major briefing” take place?

A

1 week before the final decision

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39
Q

what is the stage “final policy recommendations” in the decision on the policy interest rate decision?

A

the monetary policy review committee makes final recommendations on the policy rate decision

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40
Q

what is the stage “deliberation and decision by the governing decision” in the policy interest rate decision?

A

the governing council discusses before making a decision and the decision must be unanimous

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41
Q

what is the stage “publication and communication” in the policy interest rate decision?

A

make the press release on their final decision

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42
Q

what does the press release on the policy interest rate decision contain?

A

it only contains the final decision and does not have they individual opinions of the governing council members

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43
Q

does the US policy interest rate decision need to be unanimous?

A

no it does not

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44
Q

what does the US policy interest rate decision announcement contain?

A

it contains their final decision and also the individual opinions of the council

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45
Q

when does the canadian final policy decision get accounted?

A

Wednesday at 10AM

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46
Q

what are the 3 ways the bank of canada stabilizes the financial system?

A

it serves as a lender of last resort

has responsibility for the regulatory oversight of the national payments system

assesses financial stability

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47
Q

how does the bank of canada serving as a lender of last resort help provide financial stability of the financial system?

A

if a bank is facing a liquidity crisis the bank of canada will lend them how much they need to prevent bank runs and panics

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48
Q

how can the bank of canada having regulatory oversight of the national payments system promote financial stability?

A

the national payments system make sure that all transactions actually go through and each side holds up their end of the deal

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49
Q

how can the bank of Canada assessing stability of the financial system help promote financial stability?

A

because they are always checking the stably to help stop crisis

50
Q

what are the 2 parts of the national payments system?

A

LVTS (large value transfer system)
ACSS (automated clearing settlement system)

51
Q

what is the large value transfer system (LVTS)?

A

an electronic real time net settlement network designed to provide immediate finality and settlement to time critical transactions

52
Q

how big to transactions have to be to be participants of the large value transfer system?

A

over 50,000

53
Q

when was the large value transfer system (LVTS) introduced?

A

in 1999 by the canadian payments association

54
Q

how many participants were part of the large value transfer system?

A

17 participants including the BoC

55
Q

what percentage of large value transactions make up the total number of transactions?

A

they make up less than 1%

56
Q

how much do value do large value transactions make up of all value of all transactions?

A

about 87% of all values of transactions

57
Q

what make up the 17 participants of the large value transfer system?

A

BoC
big 6 banks
laurentian banks
Desjardins
ATB
credit union central of canada
a few foreign banks

58
Q

when was the LVTS replaced by Lynx?

A

2021

59
Q

what is an example of non large value transaction systems?

A

cheques

60
Q

how are non large value transaction cleared?

A

through the automated clearing settlement system

61
Q

what is the automated clearing settlement system (ACSS)?

A

an electronic payments system also operated by the CPA but without the vigorous risk controls of the LVTS

62
Q

how does the automated clearing settlement system (ACSS) work?

A

it aggregates interbank payments and calculates the net amounts to be transferred from and to each participants account with the bank of Canada

63
Q

is the bank of canada part of the policy interest rate decision?

A

yes

64
Q

what percentage of transactions is done with coins?

A

only 1%

65
Q

how is the bank of canada involved with currency?

A

they are responsible for the design, production and distribution of Canadas bank note and have a monopoly over the issue of bank notes

66
Q

does the bank of canada design and create the coins?

A

no, the mint does it

67
Q

how does the bank of canada manage funds of the federal government?

A

it acts acts as the government banker

provides debt-management services for the federal government

manages the governments foreign exchange reserves

68
Q

what are the 3 ways that bank of canada manages funds of the federal government?

A

advising on borrowings

managing new debt offerings (make coupons and face value payments on bonds)

servicing outstanding dept

69
Q

who is Louis rasminsky?

A

the 3rd bank of canada governor

70
Q

what is the 2 main principles reflecting Louis rasminskys view of the bank of Canadas independence?

A

1) in the ordinary course of events, the bank has the responsibility for monetary policy

2) if the government disapproves of the monetary policy being carried out by the bank, the government has the right and responsibility to direct the bank as to the policy which the bank is to carry out

71
Q

what are the 2 ways the bank of canada is not independent?

A

the bank of canada and the government have joint responsibility of the financial system

the minister of finance can issue a directive to the bank indicating the specific policy changes they the bank must follow

72
Q

what is the way the government is independent?

A

while the ultimate authority rests with the government, the bank of canada is quite independent and no government directives have ever been issued

73
Q

is the bank of canada the most independent government agency?

A

yes

74
Q

why would a politician oppose a bank policy?

A

to bring it under their supervision in order to impose a policy more to their liking

75
Q

what are the 4 reasons why the bank of canada should be independent from the government?

A

political pressure would impart an inflationary bias to monetary policy

should abound political business cycles, where before elections expansionary police are put in place

should avoid using the bank to facilitate financing of large budget deficits from the government constantly borrowing

monetary policy is too important to leave to politicians and the principal-agent problem would be worse for politicians

76
Q

what are the 4 reasons who the bank of canada should not be independent from the government?

A

undemocratic if the government is not involved

the bank would be unaccountable if the government is not involved in the banks activities

it would be difficult to coordinate fiscal and monetary policy when the bank of canada is independent from the government

other countries that have an independent central bank they have lower inflation rate but they don’t have very unemployment rates or output fluctuations

77
Q

does the independence of the bank of canada leave it completely unaccountable for its actions?

A

no, even if the bank of canada is independent from the government they would still be accountable because 2 times a year a member of parliament and the senate go to the BoC to make them explain their reasonings for their decisions

also the prime minister a governor pf finance can decide to not renew terms of board members

78
Q

when was the federal reserve created (the fed)?

A

in 1913

79
Q

what are the 5 members of the federal reserve?

A

board of governors of the federal reserve system

12 federal reserve banks

federal open market committee (FOMC)

federal advisory council

3000 member commercial banks

80
Q

how does the federal reserve regulate banks?

A

half of the banks are regulated by the federal reserve and the other half are regulated by the state

81
Q

who do the 12 federal reserve banks regulate?

A

they regulate the district that they are in and make loans to the banks in their district

82
Q

what does the federal open market committee (FOMC) do?

A

they make interest decisions

83
Q

what are the 4 things the board of governors do?

A

set reserve requirements within their limits

set interest paid on excess reserves

reviews and determines the discount rate (policy rate)

appoint 3 directors to each federal reserve bank

84
Q

what are the 4 things the federal open market committee (FOMC) do?

A

advises reserve requirements

advises interest paid on excess reserves

direct open market operations

advises discount rate

85
Q

what are the 2 things the 12 federal reserve banks do?

A

establish the discount rate

select the federal advisory council

86
Q

what does the member banks do?

A

elect 6 directors to each federal reserve bank

87
Q

what makes up the board of governors of the federal reserve system?

A

7 governor members headquartered in Washington D.C, and one chair elected from the 7 governors who serves a 4 year renewable term

88
Q

how long are the terms of governor members of the board of governors of the federal reserve system?

A

14 non-renewable terms

89
Q

who is the current chair of the board of governors of the federal reserve system?

A

Jerome powell

90
Q

what does each of the federal reserve banks regulate?

A

they regulate the district that they are in

91
Q

how many different districts are there federal reserve banks in?

A

12

92
Q

what is the most important federal reserve bank?

A

New York, they are always involved in discussions

93
Q

what are the 3 largest federal reserve banks in terms of assets?

A

New York
chicago
san Fransisco

94
Q

what percentage of assets do the new york, Chicago and san Fransisco federal reserve banks hold of the federal reserve system?

A

they hold more than 50%

95
Q

what percentage of the federal reserve assets does the New York federal reserve bank hold?

A

25%

96
Q

where are each of the 12 federal reserve banks?

A

boston
new York
philadelphia
Cleveland
Richmond
atlanta
chicago
st.louis
Minneapolis
dallas
Kansas city
san Fransisco

97
Q

what does the federal open market committee (FOMC) consist of?

A

seven members of the board of governors
the president of the federal reserve bank of New York
4 president of other federal reserve banks

98
Q

the chair of the board of governors is also the chair of what?

A

he is also the chair of the federal open market committee (FMOC)

99
Q

what are the 2 decisions the federal open market committee makes?

A

setting the policy interest rate
conduct open maket operations

100
Q

what are the 5 key functions of the federal reserve system?

A

conducting monetary policy

promoting financial system stability

supervising and regulating financial institutions

develop and issue currency

promoting consumer protection and community

development

101
Q

how does the us federal reserve conduct monetary policy?

A

they conduct it using a dual mandate

102
Q

what does it mean when the us conducts monetary policy using a dual mandate?

A

it means that they promote maximum unemployment and try to keep the inflation rate at the target, in canada they only worry about keeping the inflation rate at the target

103
Q

how does the us federal reserve promote financial system stability?

A

by fostering payment and settlement system safety and efficiency

104
Q

does the us federal reserve have more power than the bank of Canada?

A

yes, the federal bank regulates the whole financial system but the BoC does not

105
Q

is the federal reserve independent?

A

yes they are remarkably free of political pressure that influence other agencies

the power of the president in nominating board members is limited

106
Q

is the federal reserve entirely free of political pressure?

A

no, the public supper for the actions of the federal reserve plays a very important role in its decisions

107
Q

when was the European central bank created?

A

in 1998

108
Q

how many banks is the European central bank responsible for?

A

20 of the 27 EU member countries

109
Q

what constituted the euro system?

A

the European central bank and the national central banks of the participating member states

110
Q

what is the Maastricht treaty?

A

it established the euro system and specifies the goal of the European central bank is price stability and keeping a target inflation rate of 2%

111
Q

what are the 4 key functions of the European central bank?

A

conduct monetary policy
develop and issue euro bank notes
banking supervision
preserve financial stability

112
Q

how often does the European central bank governing council meet?

A

monthly on Frankfurt

113
Q

how many people make up the European central bank governing council?

A

6 members of executive board
heads of national central banks

114
Q

who is the current president of the European central bank?

A

christine Lagarde

115
Q

how do the European central bank governing council make decisions?

A

by consensus

116
Q

how often does the European central bank announce the target rate for interbank loans and take questions from the media?

A

8 times a year

117
Q

how independent is the European central bank?

A

most independent central bank in the world

118
Q

how long are the terms of the of the executive board of the European central bank?

A

they have 8 year non-renewable terms

119
Q

does the European central bank determine their own budget?

A

yes

120
Q

can the charter be changed by legislation?

A

no only by the revision of the Maastricht treaty

121
Q

how does the Bank of England make monetary and fiscal decisions?

A

they have a monetary policy and fiscal policy committee

financial systems (10 decks)

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