Holding all else constant,an increase in the real interest rate on Canadian assets will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Question

Quizplus · Accepted Answer

An increase in the real interest rate on Canadian assets makes them more attractive to investors, increasing the demand for Canadian dollars and thus increasing the equilibrium exchange rate of the Mexican peso to the Canadian dollar.

Holding All Else Constant,an Increase in the Real Interest Rate