Holding all else constant,a decrease 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

A decrease in the real interest rate on Canadian assets makes them less attractive to investors, reducing the demand for Canadian dollars and leading to a depreciation of the Canadian dollar relative to the Mexican peso.

Holding All Else Constant,a Decrease in the Real Interest Rate