Bank of Canada & CPA_Week 2

Bank of Canada & CPA_Week 2 - Bank of Canada The...

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Bank of Canada – The Basics (Source: Bank of Canada website) The Bank of Canada’s role in the Financial Market Financial markets consist of markets for money, bonds, equities, derivatives, and foreign exchange. They are one of the three elements of Canada's financial system . It is mainly through the financial markets that the Bank's key policy rate influences interest rates and the exchange rate. This, in turn, helps the Bank achieve its monetary policy objectives. The Bank is also involved in financial markets through auctions of government securities . On rare occasions, the Bank may also intervene in the foreign exchange market on behalf of the government to promote orderly markets for the Canadian dollar. The Bank conducts wide-ranging research to strengthen its understanding of the structure of the Canadian financial system and to identify how the Bank can encourage the development and stability of Canadian markets. As Canada’s central bank, the Bank of Canada has five main areas of responsibility: 1. Monetary Policy Monetary policy is concerned with how much money circulates in the economy, and what that money is worth. Canada's monetary policy is built on a framework consisting of two key components: a flexible exchange rate and an inflation-control target . The goal of monetary policy is to contribute to solid economic performance and rising living standards for Canadians by keeping inflation low, stable, and predictable. 2. Currency The Bank issues Canada's bank notes and is responsible for their design and security, distribution, and replacement. The Bank of Canada is the country's sole bank note-issuing authority. 3. Financial System The Bank actively promotes safe, sound, and efficient financial systems, both within Canada and internationally. Canada's financial system consists of: Financial Institutions These include banks, credit unions, and similar organizations. The Bank of Canada routinely provides " liquidity " to financial institutions that are participants in the financial system; that is, it lends them money overnight to facilitate the settlement of payments systems . As the " lender of last resort ," the Bank also provides emergency liquidity to eligible institutions that face significant funding problems. The Bank of Canada does not directly regulate these institutions or deal with consumer complaints
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This note was uploaded on 05/17/2011 for the course RSM 230 taught by Professor Prof.maureen during the Spring '09 term at University of Toronto- Toronto.

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Bank of Canada & CPA_Week 2 - Bank of Canada The...

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