If the Bank of Canada is using policy to combat inflation, what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?
A)The demand for the dollar will increase, and the foreign exchange value of the dollar will rise.
B)The demand for the dollar will decrease, and the foreign exchange value of the dollar will rise.
C)The demand for the dollar will increase, and the foreign exchange value of the dollar will fall.
D)The demand for the dollar will decrease, and the foreign exchange value of the dollar will fall.

Question

Quizplus · Accepted Answer

When the Bank of Canada combats inflation, it typically increases interest rates, making Canadian investments more attractive and increasing demand for the Canadian dollar, which in turn raises its value in the foreign exchange market.

If the Bank of Canada Is Using Policy to Combat