Suppose the bank rate is equal to 4.5%. What is the interest rate paid by the Bank of Canada on deposits?
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The bank rate is the rate at which the central bank (in this case, the Bank of Canada) lends money to commercial banks. Show more…
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The graph shows the demand curve for reserves in the market for bank reserves. The overnight loans rate target is 4 percent. Draw the supply curve of reserves to achieve the overnight loans rate target. Label it. Draw a point at the equilibrium in the market for bank reserves. Choose the statement that is incorrect. A. Bank reserves are costly to hold because they can be loaned in the overnight loans market and earn the overnight loans rate. B. Banks hold reserves so that they can make payments. C. The Bank of Canada's open market operations determine the demand for reserves. D. The higher the overnight loans rate, the smaller is the quantity of reserves demanded.
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Andrew deposits $50,000 in Royal Bank and Jeff borrows $30,000 from Royal Bank to buy a car from Mazda. Mazda deposits the $30,000 with CIBC. Assume that there is no currency drain and desired reserve ratio is 20%. a) Reflect the above transactions in T-accounts for both banks b) The Central Bank noticed that commercial Banks are expanding the money supply through deposit creation. Would the Central Bank Increase or decrease the desired reserve ratio? Explain c) Assume that Royal bank found that they have a deficit amount of $10,000 in the LVTS (Large Value Transfer System), and decided to leave the balance as it is. If the target of the overnight rate is 1.25%. How much would Bank of Canada charge/pay to Royal bank?
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