If the exchange rate is higher than the Bank of Canada's target exchange rate, the Bank
A)buys dollars.
B)raises the target exchange rate.
C)implements interest rate parity.
D)sells dollars.
E)implements purchasing power parity.

Question

Quizplus · Accepted Answer

If the exchange rate is higher than the Bank of Canada's target exchange rate, it means that the Canadian dollar is stronger than desired. To counteract this, the Bank may sell Canadian dollars and buy foreign currency (such as US dollars) on the foreign exchange market. This will increase the supply of Canadian dollars on the market, which should lower the exchange rate and bring it closer to the Bank's target.

If the Exchange Rate Is Higher Than the Bank of Canada's