If interest rates in Canada fall below those in the rest of the world, then
A) it depreciates Canada's exchange rate and this may result in a surplus on Canada's current account
B) the demand for Canadian dollars increases
C) exports from Canada to other countries decrease
D) it raises Canada's exchange rate and this may result in a deficit on Canada's current account
E) the balance of payments becomes negative

Question

Quizplus · Accepted Answer

When interest rates in Canada fall below those in other countries, investors are less attracted to holding Canadian assets, leading to a decrease in demand for Canadian dollars. This depreciation in the exchange rate makes Canadian goods cheaper for foreigners, potentially increasing exports and leading to a surplus on Canada's current account.

If Interest Rates in Canada Fall Below Those in the Rest