Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account.Now suppose that Canadian interest rates fall to levels below those abroad.For Canada,this tends to promote:
A) Net financial inflows
B) Net financial outflows
C) Net merchandise exports
D) Net merchandise imports

Question

Quizplus · Accepted Answer

When Canadian interest rates fall below those abroad, it becomes less attractive for foreign investors to invest in Canada, leading to net financial outflows as investors seek higher returns elsewhere.

Assume That Canada Initially Faces Payments Equilibrium in Its Merchandise