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 falls.
B)rises and the U.S. interest rate rises.
C)falls 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 interest rate differential between two countries is the difference between the interest rates of those countries. If the Canadian interest rate rises and the U.S. interest rate falls, the interest rate differential between Canada and the U.S. will increase, since the Canadian interest rate will be higher than the U.S. interest rate. Therefore, Choice A is the correct answer.

Other Things Remaining the Same, the Canadian Interest Rate Differential