question archive Open market operations are the main technique used by central banks to control the size of the monetary base
Open market operations are the main technique used by central banks to control the size of the monetary base
Subject:EconomicsPrice:2.88 Bought3
Open market operations are the main technique used by central banks to control the size of the monetary base. In Canada, open market operations involve:
A) the Bank of Canada's purchases or sales of government securities from or to the general public.
B) the Bank of Canada's attempts to affect the reserves of the banks without affecting the money supply.
C) the Bank of Canada's purchases or sales of high-grade corporate bonds and stocks from or to the general public.
D) the Bank of Canada's loans made to, or received, from members of the Canadian Payments Association.
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The answer is D).
Bank of Canad uses open market operations when the overnight rate is too close to the upper or lower band. Such operations involve selling or purchasing government securities to commercial banks (usually the so-called big six banks), with a reverse operation the next day. Therefore, these open market operations are borrowing and lending between the Bank of Canada and major banks, with government bonds used as collateral.
