1.Bank of Canada expects economy to slow down in the future. To prevent inflation from falling, Bank wants to ease monetary conditions it lowers the operating band from 0.75% - 1.25%to 0.5% - 1%

a)identify the initial bank rate, deposit rate and target overnight interestrate:

b)identify the new bank rate, deposit rate, and the overnight interest ratetarget:

c)If during the course of the day overnight funds are trading above the target overnightrate, manager at the trading desk at BoCentersinto (SPRAs orSRAs?)

d)Show the effect of the repurchase transaction (as specified by you in c.) on T-accounts of the BoC and Primary Dealer. Assume the transaction is worth $200million

Bank of Canada Primary Dealers (LVTS participants)

Assets Liabilities Assets Liabilities

e)Assuming no other transaction occurs, what is the effect of the new settlement balancesposition going to be on the overnight interest rate towards the end of theday?