Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions?
A)The interest rate differential increases or decreases.
B)The world demand for Canadian exports increases or decreases.
C)Canadian imports increase or decrease.
D)The expected future exchange rate rises or falls.
E)Both A and D above

Question

Quizplus · Accepted Answer

Option A represents changes in interest rate differential which affect both demand and supply of Canadian dollars. An increase in interest rate differential increases the demand for Canadian dollars which causes an increase in the value of Canadian dollar. On the other hand, it also increases the supply of Canadian dollars as people tend to hold more Canadian dollars due to higher interest rates. 
Option D represents expected future exchange rate changes which affect only the demand for Canadian dollars. If the expected future exchange rate rises, investors will demand more Canadian dollars in order to profit from the higher exchange rate, causing an increase in the value of the Canadian dollar. 
Therefore, both A and D above move the demand curve for Canadian dollars and the supply curve of Canadian dollars in the same direction. The correct option is therefore E.

Which of the Following Factors Move the Demand Curve for Canadian