A decision by foreign central banks to sell their holdings of Canadian bonds will
A)lower bond prices and interest rates in Canada.
B)increase bond prices and interest rates in Canada.
C)increase bond prices and lower interest rates in Canada.
D)lower bond prices and increase interest rates in Canada.

Question

Quizplus · Accepted Answer

If foreign central banks decide to sell their holdings of Canadian bonds, this means there will be an increase in the supply of bonds in the market. As a result, the price of bonds will decrease because there will be less demand for them. Additionally, when the price of bonds decreases, the interest rates on those bonds will increase to compensate for the decrease in bond prices. Therefore, the correct choice is D, which states that foreign central banks selling their Canadian bonds will lower bond prices and increase interest rates in Canada.

A Decision by Foreign Central Banks to Sell Their Holdings