Suppose the Bank of Canada Raises Its Target for the Overnight

question 38

Multiple Choice

Suppose the Bank of Canada raises its target for the overnight interest rate from 3 percent to 3.25 percent, while interest rates in other countries do not change. The result will be

• A)an inflow of financial capital, an increase in demand for Canadian dollars, and an appreciation of the Canadian dollar.
• B)an inflow of financial capital, an increase in demand for Canadian dollars, and a depreciation of the Canadian dollar.
• C)an outflow of financial capital, an increase in demand for Canadian dollars, and an appreciation of the Canadian dollar.
• D)an inflow of financial capital, a decrease in demand for Canadian dollars, and a depreciation of the Canadian dollar.
• E)an outflow of financial capital, a decrease in demand for Canadian dollars, and a depreciation of the Canadian dollar.

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Definitions:

Proper Tender

The act of presenting an exact amount of money in the appropriate form as payment for a debt or obligation.

Endorsers Discharged

Refers to the situation where endorsers (persons who sign documents, typically negotiable instruments, to endorse them) are released from their obligations under the instrument.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a specified sum of money either on demand or at a specified future date.

Discharged Liability

Refers to a debt or obligation that has been fulfilled, canceled, or extinguished, relieving the debtor of any further responsibility.