Which of the following factors influence the demand for Canadian dollars?
A)Interest rates in Canada and other countries, and the expected future exchange rate.
B)The exchange rate and the world demand for Canadian exports.
C)The world demand for Canadian exports and Canadian demand for imports.
D)Both A and B are correct.
E)Both B and C are correct.

Question

Quizplus · Accepted Answer

Interest rates in Canada and other countries affect the demand for Canadian dollars because higher interest rates attract foreign investors who want to earn a higher return on their investments in Canadian assets, leading to an increase in demand for Canadian dollars. The expected future exchange rate also affects demand because if investors believe the Canadian dollar will appreciate in the future, they will want to buy Canadian dollars now to profit from the expected appreciation. The exchange rate and world demand for Canadian exports also affect the demand for Canadian dollars because if foreign buyers want to purchase Canadian goods, they must first exchange their currency for Canadian dollars, leading to an increase in demand for Canadian dollars. Therefore, both A and B are correct. The world demand for Canadian exports and Canadian demand for imports, as noted in option C, can also affect the demand for Canadian dollars, but this factor is less directly related to currency demand. Option E is incorrect because it only includes factors related to either exports or imports, but not interest rates or expected exchange rates.

Which of the Following Factors Influence the Demand for Canadian