Money And Banking Related Article

2702 WordsDec 2, 201411 Pages
1. Find a recent (September 2014-Dec 2014) money and banking related article in the media (the Economist, Globe and Mail, National Post, New York Times, etc.,), and attempt to explain parts or all of it using the tools we learned in class. Highlight the sentences that you analyze, and hand in the article along with your work. Use written and graphical explanations. (3 double-spaced) Article: Bank of Canada’s Poloz poised to extend central bank’s rate pause to the longest since World War Two http://business.financialpost.com/2014/12/01/bank-of-canada-rate-poloz/ Stephen Poloz is poised to extend the Bank of Canada’s interest-rate pause to the longest since World War II, helping Canadian bond yields resist the pressure of prospective…show more content…
Since the price of oil has been falling like free ball, the government must take into consideration that it is essential to keep the value of Canadian currency low in order to improve exports when trading with other countries. Poloz will keep his benchmark overnight rate at 1 per cent Dec. 3 according to all 22 economists surveyed by Bloomberg News through Nov. 28, stretching the pause that began with Mark Carney in 2010. That would make it the longest since February 1944 to September 1950, exceeding the October 1950 to January 1955 hiatus. Explanation: The bank’s optimal objective is to keep the overnight interest rate between 1 to 3 per cents. According to equilibrium in the market for reserves graph, the overnight rate is determined by the interest rate paid by excess or insufficient reserves. In this case, the interest rate as low as one per cent implies that the interest rate paid by reserves is equal to the overnight interest rate. Even if the Bank of Canada accidently set up the overnight interest rate at 2 per cents, this rate would fall in order to lower the opportunity cost of holding reserves, excess reserves would be demanded by parties who are interested in taking advantage of. The period of unchanged rates “does say something about the depth of the financial crisis and the anemic recovery,” said Eric
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