Money and Bank#1When the Bank of Canada announces they will purchase $500 billion in long-term Canadabonds, the price of these bonds will increase and the rates of the bonds will decrease. Thiswill result in the policy yield curve shifting down. During the current economic crisis theyield curve is likely to become flat or possible inverted. The flat curve is due to the shortand long term interest rates being similar. If the short-term rates become greater than thelong term the curve may become inverted.#2Assets (millions)Liabilities (millions)Rate Sensitive Assets = 20Rate sensitive liabilities = 50Fixed rate assets = 80Fixed rate liabilities = 40A) Income gap = 20-50 = -$30 millionB) If the interest rates decline by 1% the interest income of the rate sensitive assetsand rate sensitive liabilities will both decrease. The net interest for the bank willdecrease resulting ...
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