Chapter 16

Question 1

What is LVTS and what do they do?

Answer 1

The Large Value Transfer System (LVTS)
– Electronic, real-time net settlement network
– Designed to provide immediate finality and settlement to
time-critical transactions

Question 2

What do LVTS use that makes them useful?

Answer 2

The LVTS uses multilateral netting
– Only the net credit or debit position of each participant vis-à-vis all other participants is calculated for settlement
The LVTS helps eliminate systemic risk

Question 2

What restrictions must participants fulfill to be able to make a payment? (3)

Answer 2

– they have positive settlement balances in their
accounts with the Bank of Canada,
– posted collateral (such as T-bills and bonds), or
– explicit lines of credit with other LVTS participants

Question 3

Who clears non-LVTS transactions? How is it done?

Answer 3

• These items are cleared through the Automated Clearing Settlement System (ACSS), an electronic payments system also operated by Payments Canada
• The ACSS aggregates interbank payments and calculates the net amounts to be transferred from and to each participant’s settlement account with the Bank of Canada
  *Paper-based such as cheques

Question 4

What is the BoC’s preferred measure of inflation? and what things does it exclude?

Answer 4

the Bank of Canada’s preferred measure of
inflation is “core CPI,” which excludes volatile components (such as food, energy, and the effect of indirect taxes).