How Will an Interest Rate Decrease in Canada Affect Equilibrium

question 170

Multiple Choice

How will an interest rate decrease in Canada affect equilibrium in the foreign exchange market?

• A)The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined.
• B)The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined.
• C)The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase.
• D)The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase.
• E)The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded cannot be determined.

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Definitions:

Money Market

A financial market for debt securities with maturities of less than 1 year (short term). The New York money market is the world’s largest.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental.

Secondary Market

The financial market where investors buy and sell securities they already own, as opposed to the primary market where securities are first issued.

Intrinsic Value

The inherent worth of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.