The overnight interest rate ________.
A) is the shortest-term rate available
B) forms the base of any term structure of interest rates relation
C) is the rate the Bank of Canada charges LVTS participants with negative settlement balances at the end of the banking day
D) Only A and B of the above.

Question

Quizplus · Accepted Answer

Option A is true because the overnight interest rate is the interest rate for loans with a maturity of overnight or one day. Option B is also true because the overnight interest rate is the starting point for determining interest rates for longer-term loans. Option C is not completely true because the Bank of Canada charges the overnight rate to LVTS participants that have positive settlement balances at the end of the banking day, not negative balances. Therefore, options A and B are both true, and option C is false, leading to the choice of D as the correct answer.

The Overnight Interest Rate ________