The target for settlement balances is set at ________.
A) zero with no adjustments for any pressures on the overnight rate
B) zero but the Bank makes adjustments depending on pressures on the overnight rate
C) zero but the Bank makes adjustments depending on pressures on the prime rate
D) always positive with no adjustments

Question

Quizplus · Accepted Answer

The target for settlement balances is set at zero, which means the Bank of Canada aims to have no excess or deficient funds in the banking system. However, the Bank makes adjustments to the target based on pressures on the overnight rate, which is the interest rate at which banks lend and borrow money overnight. If there is upward pressure on the overnight rate, the Bank may increase the target for settlement balances to provide more liquidity to the system. Conversely, if there is downward pressure on the overnight rate, the Bank may decrease the target for settlement balances to reduce excess liquidity in the system.

The Target for Settlement Balances Is Set at ________