A decrease in the real interest rate outside of Canada will ________ the demand for the dollar and ________ the demand for foreign financial assets.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

A decrease in the real interest rate outside of Canada makes foreign financial assets less attractive, increasing the demand for Canadian dollars as investors seek better returns in Canada, thus decreasing the demand for foreign financial assets.

A Decrease in the Real Interest Rate Outside of Canada