QUESTION 11

Which of the following statements is correct? The supply of reserves, drawn as a function of the cash rate, _____________________.

	A.	has a kink at the lending facility rate because at that rate banks are indifferent between lending in the interbank market and borrowing from the RBA
	B.	is manipulated by the Australian Treasury to hit its cash rate target.
	C.	is a decreasing function because the cash rate is an opportunity cost for holding reserves.
	D.	has its position affected by the operations of the government with households.
	E.	is vertical to the interbank interest rate for levels below the lending facility rate because commercial banks do not use the interbank market.

Which of the following statements is correct?

In the stock approach of the market for reserves, the demand for reserves comes from __________ while the supply for reserves come from ___________.

	A.	banks; the central bank
	B.	issuers; investors
	C.	borrowing banks; lending banks
	D.	the central bank; the banks
	E.	lending banks; borrowing banks