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A rise in the Canadian interest rate differential increases the demand for Canadian dollars and de

A rise in the Canadian interest rate differential increases the demand for Canadian dollars and de

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- A rise in the Canadian interest rate differential increases the demand for Canadian dollars and decreases the supply of Canadian dollars. The exchange rate rises - A fall in the Canadian interest rate differential decreases the demand for Canadian dollars and increases the supply of Canadian dollars. The exchange rate falls. - A rise in the expected future exchange rate increases the demand for Canadian dollars and decreases the supply of Canadian dollars. The exchange rate rises.
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Unformatted text preview: -Purchasing power parity means equal value of money o If purchasing power parity does not prevail, the demand for Canadian dollars changes and the supply of Canadian dollars changes -In the short run, the nominal exchange rate in the exchange rate that sets the quantity of Canadian dollars demanded equal to the quantity of Canadian dollars supplied....
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