Other things remaining the same, the Canadian interest rate differential increases for sure if the Canadian interest rate
A)rises and the U.S.interest rate rises.
B)falls and the U.S.interest rate falls.
C)rises and the U.S.interest rate falls.
D)falls and the U.S.interest rate rises.
E)doesn't change and the U.S.interest rate rises.

Question

Quizplus · Accepted Answer

The Canadian interest rate differential is the difference between the Canadian interest rate and the U.S. interest rate. If the Canadian interest rate rises while the U.S. interest rate falls, this would increase the interest rate differential as the gap between the two rates widens. Conversely, if the Canadian interest rate falls while the U.S. interest rate rises, the interest rate differential would decrease as the gap between the rates narrows. Therefore, choice C is the best option.

Other Things Remaining the Same, the Canadian Interest Rate Differential