If,in a System of Fixed Exchange Rates,the Value of the Canadian

question 130

Multiple Choice

If,in a system of fixed exchange rates,the value of the Canadian dollar,as measured in British pounds,is above the equilibrium level,which of the following would happen?

• A)Canada will have a balance of trade surplus.
• B)There will be an inflow of foreign currencies into Canada.
• C)The Canadian dollar will depreciate.
• D)There will be a shortage of foreign currencies in Canada.
• E)The Bank of Canada will be forced to ration Canadian dollars to foreign importers.

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Definitions:

CPI Increased

A rise in the Consumer Price Index, indicating a general increase in the prices of consumer goods and services.

4%

An interest rate or percentage representing a part of a whole, especially in the context of financial rates.

C$ Per US$

The exchange rate determining how much Canadian dollars (C$) you can exchange for one US dollar (US$).

Exchange Rate

The financial value of one currency in the context of another for the purpose of exchange.