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How a decrease in the interest rate in Canada would affect the direct exchange rate USD/CAN...

How a decrease in the interest rate in Canada would affect the direct exchange rate USD/CAN and the US economy? Explain

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Answer #1

A decrease in the interest rate in Canada would result in lower investment in the Canadian dollar and higher investment in the US dollar as an investment in the US dollar would provide more returns. This will result in an appreciation in the US dollar and a depreciation in the Canadian dollar. Therefore, the USD/CAD exchange rate would fall as 1 CAD would be able to buy less amount of USD.

There will be an increase in the flow of money in the USA, which will increase loanable funds in the USA. This will have positive effects on the USA economy.

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