If the Bank of Canada Is Using Policy to Combat

question 228

Multiple Choice

If the Bank of Canada is using policy to combat inflation, what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?

• A)The demand for the dollar will increase, and the foreign exchange value of the dollar will rise.
• B)The demand for the dollar will decrease, and the foreign exchange value of the dollar will rise.
• C)The demand for the dollar will increase, and the foreign exchange value of the dollar will fall.
• D)The demand for the dollar will decrease, and the foreign exchange value of the dollar will fall.

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Definitions:

Sensitivity Analysis

A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, calculated by subtracting the present value of cash outflows from the present value of cash inflows.

Sales Forecast

An estimate of the amount of sales that a company expects to achieve in a certain period.

Discount Rate

The interest rate used to discount future cash flow to its present value, reflecting the time value of money and risk of the cash flow.