CSC 1

When the government runs a deficit, who must it borrow from to finance the national debt?

• Capital markets

• The government borrows exclusively from international banks.
• The government does not need to borrow to finance the national debt.
• IMF

What is the most important numbers in the national budget?

• Total revenue, total expenses, net income, key allocations.
• surplus/deficit

• Marketing strategies
• Employee headcount

How is the Bank Rate determined?

.

• Average of the last 12 months of interest rates.

• Upper limit of the operating band for overnight financing by the Bank of Canada.

• Fixed rate set by the Prime Minister.

• Lower limit of the operating band for overnight financing by the Bank of Canada.

The Bank of Canada increases the target rate for the overnight rate of interest by 0.5%. By how many basis points will the rate change?

• 50 basis points.

• 1 basis point.
• 25 basis points.
• 100 basis points.

Overnight money is currently trading above the target of the operating band and the Bank of Canada wants to implement a strategy to offset

the impact this may have on the economy. What type of open market operation is most appropriate?

• Special Purchase and Resale Agreement

• Term Deposit Facility

• Currency Swap Agreement

• Overnight Lending Facility

Overnight money is currently trading below the target of the operating band and the Bank of Canada implements a Sale and Repurchase

Agreement to offset the impact this may have on the economy. Why would the Bank of Canada implement this strategy?

• Belief that interest rates need to be lowered.

• Belief that inflationary pressures could rise.

• Belief that the economy is in a recession.

• Belief that consumer spending is decreasing.

What action would the Bank of Canada take to relieve upward pressure on interest rates?

• Increase interest rates.

• Buy government bonds.

• Special Purchase and Resale Agreement.

• Implement a currency swap.

What fiscal policy challenge could affect the success of a government9s decision to immediately reduce inflationary pressures in the

economy by reducing spending on infrastructure projects?

• Timing lag

• Impact of international economies.

• Future expectations..

• Increased government revenue from infrastructure projects.

What action will Bank XYZ take if it finds that its balance in the Large Value Transfer System (LVTS) is a $25 million deficit?

• Wait for the deficit to resolve itself.

• Close the account immediately.

• Transfer funds from a personal account.

• A. Borrow from another LVTS participant.

What actions could a central bank take to improve the state of the economy in a country that is currently in a recession?

1. Reduce the money supply.

2. Increase the money supply.

3. Raise interest rates.

4. Lower interest rates.

• D. 2 and 4
• C. 1 and 2 and 3
• B. 3 and 4
• A. 1 and 2