Open-market operations occur when the Bank of Canada:

Question

Quizplus · Accepted Answer

Open-market operations refer to the buying and selling of government securities by the central bank in the open market. In this case, the Bank of Canada buys or sells existing Canadian Treasury bills to affect the level of reserves in the banking system and influence interest rates. Buying Canadian Treasury bills adds reserves to the banking system, while selling Treasury bills reduces reserves. Option A is incorrect because the Bank of Canada doesn't buy Treasury bills from the federal government; the government issues the Treasury bills and sells them on the open market. Option B is incorrect because foreign currency transactions are not classified as open-market operations. Option D is incorrect because the Bank of Canada doesn't sell Treasury bills to the federal government.

Open-Market Operations Occur When the Bank of Canada