Holding all else constant,tighter monetary policy in Canada will _________ the demand for dollars in the foreign exchange market and _________ the equilibrium Mexican peso-dollar exchange rate.

Question

Quizplus · Accepted Answer

Tighter monetary policy in Canada typically leads to higher interest rates, making Canadian assets more attractive to investors. This increases the demand for Canadian dollars, leading to an appreciation of the Canadian dollar relative to the Mexican peso, thus increasing the equilibrium exchange rate.

Holding All Else Constant,tighter Monetary Policy in Canada Will _________