If the Bank of Canada wants to temporarily drain reserves from the banking system, it will engage in ________.
A) a repurchase agreement
B) a sale and repurchase agreement
C) a "pump" agreement
D) None of the above.

Question

Quizplus · Accepted Answer

The Bank of Canada can temporarily drain reserves from the banking system by engaging in a sale and repurchase agreement. In this process, the Bank sells securities to banks with an agreement to repurchase them at a later date. This temporarily removes funds from the banking system, effectively draining reserves.

If the Bank of Canada Wants to Temporarily Drain Reserves