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What is the immediate and the long-term impact

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In order to support the Canadian dollar, the Bank of Canada buys an amount of Euros from some major commercial Canadian banks (a type of operation the Bank of Canada rarely undertakes).

a. What is the immediate and the long-term impact of this operation on the money supply? Explain.

b. If the Bank of Canada does not wish that the currency swap influences the money supply, what does it have to do? Explain.

c. Describe what limits the precision of the Bank of Canada's control of the money supply and explain how it limit that control.

Reference no: EM132813455

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