When the Bank of Canada wants to see an increase in the interest rates, it:
A)sells government securities by entering into SRA (a sale and repurchase agreement).
B)buys government securities by entering into SRA (a sale and repurchase agreement).
C)sells government securities by entering into SPRA (special purchase and resale agreement).
D)buys government securities by entering into SPRA (special purchase and resale agreement).

Question

Quizplus · Accepted Answer

When the Bank of Canada wants to increase interest rates, it will sell government securities through a sale and repurchase agreement (SRA). This means that the bank will sell securities to buyers with an agreement to repurchase them at a later date, usually within a short time frame. By doing this, the bank reduces the amount of money in circulation and increases the demand for money, which in turn raises interest rates.

When the Bank of Canada Wants to See an Increase