ECON 345 Chapter Notes - Chapter 16: Canadian Dollar, Openmarket, Pras
Document Summary
It uses mul6lateral ne7ng: only the net credit or debit of each par6cipant is calculated for the daily sealement. It eliminates systemic risk: par6cipants can make a payment if they have a posi6ve sealement balance with the bank of canada. Posted collateral (ie t-bill) or line of credit with other lvts par6cipant. It uses a net amount at the end of the day. Bank of canada"s policy rate: overnight interest rate. The interest rate at which par6cipants borrow and lend overnight funds to each other in the money market. The target for the overnight rate which is the main tool the bank of canada uses to conduct monetary policy: bank of canada tries to keep the within a band of 50 basis points (%0. 5) The upper limit of the band is the bank rate which the bank charges the lvts par6cipant to cover their nega6ve sealement accounts.