Question Details

The Bank of Canada's actual path is somewhere in the middle



1. "As interest rates rose by record leaps this week, the dollar continued its slide." What is most likely going on here? 
a) the rise in interest rates is decreasing exports 
b) the rise in interest rates is decreasing capital inflows 
c) the slide in the dollar must be causing the Fed to increase interest rates 
d) the slide in the dollar is increasing the cost of living and so increasing interest rates 116 
2. "The central bank, fearing inflation, has kept interest rates up. However, to offset the upward pressure those rates are putting on the currency, it has also been....." Complete this clipping. 
a) selling bonds to foreigners 
b) buying dollars on the foreign exchange market 
c) selling dollars on the foreign exchange market 
3. "Our international reserves fell by $330 million to $3.2 billion last month - not much ammunition if the going gets tough." What is happening here? 
a) there is a balance of payments deficit and the Fed is trying to prevent a rise in the exchange rate 
b) there is a balance of payments deficit and the Fed is trying to prevent a fall in the exchange rate 
c) there is a balance of payments surplus and the Fed is trying to prevent a rise in the exchange rate 
d) there is a balance of payments surplus and the Fed is trying to prevent a fall in the exchange rate 
4. "The two-pronged attack - raising interest rates to attract liquid capital into the country and using foreign currency holdings to sop up unwanted dollars - has been designed to ......" This clipping is best completed with 
a) prevent a fall in the dollar b) prevent a rise in the dollar 
c) increase the money supply d) deal with a balance of payments surplus 
5. "These are the extreme positions. The Bank of Canada's actual path is somewhere in the middle. Some of the brunt of higher U.S. interest rates is taken in higher domestic rates, some through a lower-valued Canadian dollar and some through a loss of international reserves." The upshot of all this is a Canadian balance of payments deficit that is 
a) being allowed to continue b) zero because of a lower Canadian dollar 
c) zero because of higher Canadian interest rates 
d) zero because of a combination of higher interest rates and a lower dollar




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