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In Order to Support the Canadian Dollar, the Bank of Canada

question 11

Essay

In order to support the Canadian dollar, the Bank of Canada buys an amount of Euros from some major commercial Canadian banks (a type of operation the Bank of Canada rarely undertakes).
a. What is the immediate and the long-term impact of this operation on the money supply?
b. If the Bank of Canada does not wish that the currency swap influence the money supply, what does it have to do?


Definitions:

Joint Venture

A business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task or business activity.

Rights To Net Assets

The entitlements that equity holders have to a company's assets after all liabilities have been settled.

Specific Assets And Liabilities

Items on a company's balance sheet that are clearly identified and quantified, including cash, inventory, debt, and equity.

Incorporated Business

A business entity that is legally recognized as separate from its owners, with its own rights and liabilities.

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