The Canadian exchange rate depreciates if
A)prices increase in the United States and other countries but remain constant in Canada.
B)the Canadian interest rate differential rises.
C)the Canadian interest rate differential falls.
D)the demand for Canada's exports increases.
E)Canada's demand for imports decreases.

Question

Quizplus · Accepted Answer

A decrease in the Canadian interest rate differential means that the interest rate in Canada is becoming relatively less attractive compared to other countries, so investors will be less willing to hold Canadian dollars. This will lead to a decrease in demand for the Canadian dollar, causing its value to depreciate relative to other currencies.

The Canadian Exchange Rate Depreciates If