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International Financial Management

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 32QA

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Question

D6)

1) Using the following information, explain how the BOC uses the channel corridor system to
achieve their target for the overnight interest rate. Assume that the BOC would like the real
overnight interest rate to increase by 0.5% and is maintaining a 0.5% operating band.
a. Current Rates:
i. Bank Rate=0.75%
ii. Policy Rate=0.50%
iii. Rate on Excess Reserves-0.25%
iv. Inflation Rate 5.5%.

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