Which of the following statements about the deposit facility in the Eurosystem are correct?
A)Banks are paid an interest rate that is typically 100 basis points below the target financing rate.
B)The prespecified interest rate on the deposit facility provides a floor for the overnight market interest rate.
C)The interest rate on reserves set by the ECB is not always positive.
D)All of the above.
E)Only A and B.

Question

Quizplus · Accepted Answer

The deposit facility is a monetary policy instrument of the Eurosystem, and all the statements provided are correct. A) The interest rate on the deposit facility is usually lower than the main refinancing rate, often by 100 basis points. B) The interest rate on the deposit facility helps to set a lower boundary for the overnight market interest rate because banks would not lend to each other at a rate lower than they can receive from the central bank. C) The interest rate on reserves, including the deposit facility, can indeed be negative, as has been the case in the Eurozone in recent years to encourage lending and investment.

Which of the Following Statements About the Deposit Facility in the Eurosystem