444 PA R T V Central Banking and the Conduct of Monetary Policy Today Securities Buys Sells Bank of Canada Primay Dealer Pays Receives Cash Next Day Securities Sells Buys Bank of Canada Primay Dealer Receives Buys Pays Cash + Interest F I G U R E 17- The Mechanics of a Special PRA Operation Note: In a special PRA (SPRA), the Bank of Canada buys securities from a primary dealer in exchange for cash and the primary dealer agrees to buy the securities back (repurchase them) the next day at the original price plus interest, regardless of what happens in the market In that arrangement, the primary dealer gets an overnight collateralized loan and the Bank of Canada gets some interest Hence, repos, also known as special Purchase and Resale Agreements (SPRAs), relieve undesired upward pressure on the overnight interest rate SRAs If on the other hand overnight funds are traded at a rate below the target rate of 3.75%, then the Bank of Canada enters into SRAs, in which the Bank sells government securities and the buyer agrees to sell them back to the Bank one business day later The balance sheets of the Bank of Canada and the direct clearers now look like this: Bank of Canada Assets Primary Dealers Liabilities Settlement balances SRAs Assets *$100 +$100 Settlement balances Government securities Liabilities *$100 +$100