How would a decrease in the Canadian budget deficit affect the exchange rate in the market for dollars?
A)The exchange rate will increase.
B)The exchange rate will decrease.
C)The quantity of dollars traded for foreign currencies will rise.
D)The exchange rate will not be affected by a change in the budget deficit.
E)The impact of the decrease in the budget deficit on the exchange rate cannot be predicted.

Question

Quizplus · Accepted Answer

A decrease in the Canadian budget deficit can lead to lower interest rates, reducing the demand for Canadian dollars as investors seek higher returns elsewhere, thus decreasing the exchange rate.

How Would a Decrease in the Canadian Budget Deficit Affect