Canadian Securities Course (CSC) Level 1 Practice Exam

How wide is the operating band of the bank rate?

1. 10 basis points wide

2. 25 basis points wide

3. 50 basis points wide

4. 75 basis points wide

The correct answer is: 50 basis points wide

The operating band of the bank rate is defined as the range within which the central bank (in Canada, this is the Bank of Canada) adjusts interest rates to influence economic activity and manage inflation. The band is generally set with a specific width designed to provide a framework for maintaining stability in the financial system. When considering the operating band, it typically includes the key policy interest rate and a margin above and below it. The correct answer indicates that the band is 50 basis points wide, which means there is a range of 0.50% between the upper and lower bounds of the bank rate. This width allows the central bank to implement monetary policy effectively without creating excessive volatility in the market. The reason for selecting a width of 50 basis points specifically relates to the operational needs of the monetary policy framework and the need to provide enough room for fluctuations in the market while still maintaining control over the overarching interest rates in the economy. Understanding this concept is crucial, as it underlines the Bank of Canada's strategies in influencing lending rates and the broader implications for economic growth and inflation control. The other options represent different widths that do not align with the established framework for the Canadian bank rate, affirming that 50 basis points is the operational standard currently in