To reduce the overnight lending rate, the Bank of Canada can:
A)buy government bonds from the chartered banks.
B)increase the bank rate.
C)increase the prime interest rate.
D)sell government bonds to chartered banks.

Question

Quizplus · Accepted Answer

When the Bank of Canada buys government bonds from chartered banks, it injects cash into the banking system, increasing the supply of money and reducing the overnight lending rate. Therefore, option A is the correct choice. Increasing the bank rate or prime interest rate would have the opposite effect, as it would make borrowing more expensive and reduce the supply of money, causing the overnight lending rate to increase. Selling government bonds to chartered banks would also have the opposite effect, as it would drain cash from the banking system and increase the overnight lending rate.

To Reduce the Overnight Lending Rate, the Bank of Canada