Suppose the Bank of Canada's Announced Target for the Overnight

Multiple Choice

Suppose the Bank of Canada's announced target for the overnight interest rate is 2.75%.Why should we expect commercial banks to borrow and lend overnight funds at a rate very close to this target?

A) Because the Bank of Canada Act requires that commercial banks borrow from each other at a rate no higher than 0.25% above the target rate.
B) Because commercial banks know that they can borrow from the Bank of Canada at 3.00%,and lend to the Bank at 2.50% so the rate they charge each other will stay within that range.
C) Because the Bank of Canada chooses its target rate based on the anticipated borrowing needs of the commercial banks.
D) Because it is not legal for commercial banks to transact between each other at any rate outside of the Bank of Canada's target range.
E) Because commercial banks face regulatory obstacles if they borrow from each other at any rate outside of the Bank of Canada's target range.