Which statement below best expresses the relationship between the 3-month Treasury bill rate and the overnight loans rate? The rates are
A)not similar because banks can not readily substitute between them.
B)similar because they are both required to remain with the Bank of Canada's operating band.
C)similar because banks can readily substitute between them.
D)not similar because the treasury bill rate is established through the financial markets whereas the overnight loans rate is set by the Bank of Canada.
E)not similar because the treasury bill rate is set by the Government of Canada whereas the overnight loans rate is set by the Bank of Canada.

Question

Quizplus · Accepted Answer

The overnight loans rate and the 3-month Treasury bill rate are both short-term interest rates that are used by banks to borrow and lend funds to each other. Therefore, banks can easily substitute between them. The other answer choices are incorrect: A is false because banks can substitute between the two rates; B is partially correct, but the Bank of Canada sets the target for the overnight loans rate, while the financial markets determine the actual rate; D is false because the 3-month Treasury bill rate is established through auctions that are conducted by the Bank of Canada on behalf of the federal government; and E is false because both rates are set by the Bank of Canada.

Which Statement Below Best Expresses the Relationship Between the 3-Month