Given floating exchange rates,a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an):
A) Appreciation of the pound against the dollar
B) Depreciation of the pound against the dollar
C) Unchanged pound/dollar exchange rate
D) None of the above

Question

Quizplus · Accepted Answer

A decrease in the Canadian demand for British products would decrease the demand for British pound, causing depreciation. An increase in the British desire to invest in Canadian government securities would increase the demand for Canadian dollars, putting further downward pressure on the pound. Therefore, there would be a depreciation of the pound against the dollar.

Given Floating Exchange Rates,a Simultaneous Decrease in the Canadian Demand