The overnight interest rate
A)is determined administratively by the Bank of Canada.
B)is determined by the supply of and demand for bank reserves.
C)is determined directly by household demand for funds.
D)is determined directly by firm demand for funds.
E)is determined the demand for loanable funds.

Question

Quizplus · Accepted Answer

The overnight interest rate is determined by the supply of and demand for bank reserves in the interbank loan market, where banks can borrow or lend their excess reserves. The Bank of Canada can influence this rate through its monetary policy actions, but it does not administratively set this rate. The household and firm demand for funds can affect the longer-term interest rates, but not the overnight rate. The demand for loanable funds is a broader concept that encompasses all types of borrowing and lending, not just the interbank market.

The Overnight Interest Rate