When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential ________ and the Canadian dollar ________ on the foreign exchange market.

Question

Quizplus · Accepted Answer

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential falls, meaning that the difference between Canadian and foreign interest rates decreases. This makes the Canadian dollar less attractive to foreign investors, resulting in a decrease in demand and a depreciation in value on the foreign exchange market.

When the Bank of Canada Lowers the Overnight Loans Rate