When a bank receives a $50 million discount loan from the Bank of Canada,the bank's reserves

Question

Quizplus · Accepted Answer

When a bank receives a discount loan from the Bank of Canada, it means that the Bank of Canada is lending money to the bank at a lower interest rate than the prevailing market rate. In exchange, the bank has to pledge collateral to the Bank of Canada, which is usually government securities. This infusion of cash in the bank's account leads to an increase in the bank's reserves by the same amount, which in this case is $50 million. Therefore, the correct choice is C) increase by $50 million.

When a Bank Receives a $50 Million Discount Loan from the Bank