Suppose the Bank of Canada increases the overnight rate.What are chartered banks likely to do?
A) lower their prime rate
B) raise their prime interest rate
C) keep their prime lending rate the same
D) offset this change by lowering the interest rates they pay on savings deposits

Question

Suppose the Bank of Canada increases the overnight rate.What are chartered banks likely to do?  
A) lower their prime rate 
B) raise their prime interest rate 
C) keep their prime lending rate the same 
D) offset this change by lowering the interest rates they pay on savings deposits

Quizplus · Accepted Answer

Chartered banks are likely to raise their prime interest rate when the Bank of Canada increases the overnight rate. This is because the cost of borrowing for the banks also increases, so they adjust their lending rates to maintain profitability.

Suppose the Bank of Canada Increases the Overnight Rate