Can you help as I'm having trouble keeping SPRAS and SRAS straight? - ProProfs Discuss
Advertisement

Can you help as I'm having trouble keeping SPRAS and SRAS straight?

Asked by Nathan, Last updated: Sep 14, 2021

+ Answer
Request
Question menu
Vote up Vote down

1 Answer

John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

The key to understanding and remembering how spras and sras work is to identify first what the bank of canada does. In a special purchase resale agreement, the first action is a purchase. The bank of Canada purchases t-bills in exchange for money.

By handing over money, the bank of Canada is essentially lending money. How can the bank of Canada lend money and make it an attractive deal for the borrower? By charging lower rates than the current market rate. Since the borrowers are trying to maximize profits, etc., borrowers would likely turn to the bank of Canada and accept the loan. Borrowers paying lower rates force other lenders to drop rates as well. So the end result is downward pressure on interest rates.

In a sale repurchase agreement, the first action is a sale. The bank of Canada sells tbills in exchange for money. By receiving money, the bank of Canada is essentially borrowing money. How can the bank of Canada borrow money and make it an attractive deal for the lender? By offering to pay higher rates than the current market rate. Since the lenders are trying to maximize profits, etc., lenders would likely turn to the bank of Canada and lend their money.

upvote downvote
Reply 

Advertisement
Advertisement
Search for Google images Google Image Icon
Select a recommended image
Upload from your computer Loader
Image Preview
Search for Google images Google Image Icon
Select a recommended image
Upload from your computer Loader
Image Preview
Search for Google images Google Image Icon
Select a recommended image
Upload from your computer Loader

Email Sent
We have sent an email to your address "" with instructions to reset your password.