4 questions on "central banks' tools of monetary control - the bank rate"

2. What happens if a commercial bank does not have enough in its deposit account with the bank of Canada to settle its debts?
The bank will borrow additional reserves from other banks at an over night rate
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What is the rate at which the overnight funds market allows banks to borrow reserves from each other? How is it determined?
Overnight rate
it is determined be the supply and demand, of both which are strongly affected by the central bank.
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How does the increase in the target overnight rate affect affect the money supply?
  • If the central bank increases the target overnight rate
  • banks would decrease lending,
  • money supply would decrease
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How does the target overnight rate affect com banks decisions?
the  target overnight rat serves as a benchmarks for the commercial bank loans.
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