The Canadian exchange rate depreciates if
A)prices increase in the United States and other countries but remain constant in Canada.
B)the Canadian interest rate rises.
C)the U.S.interest rate rises.
D)all of the above.
E)none of the above.

Question

Quizplus · Accepted Answer

If the US interest rates rise, it makes holding US dollars more attractive for investors, causing an increase in demand for the dollar and a decrease in demand for the Canadian dollar, resulting in a depreciation of the Canadian exchange rate. Option A is incorrect as it describes the effect of inflation. Option B is incorrect as a rise in Canadian interest rates would make the Canadian dollar more attractive to investors, leading to an appreciation of the exchange rate. Option D is incorrect as only option C is correct.

The Canadian Exchange Rate Depreciates If