Sally Metford, CFA, has just accepted a position working for the Canadian government. As an economic advisor, Metford has been asked to comment on the implications of changes in domestic currency, government policy, and inflation expectations.
According to money demand theory, an increase in economic activity in Canada will most likely lead to a(n):
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A) |
increase in demand for Canadian dollars causing a depreciation in Canadian currency. | |
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B) |
increase in demand for Canadian dollars causing an appreciation in Canadian currency. | |
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C) |
decrease in demand for Canadian dollars causing a depreciation in Canadian currency. | |
According to money demand theory, an increase in economic activity in Canada will most likely lead to an increase in demand for Canadian dollars causing an appreciation in Canadian currency. Therefore, the money demand model explains the positive short-run correlation between exchange rate movements and stock returns.
Metford’s supervisor has asked for recommendations regarding interest rate policies. The Canadian government is concerned that the value of the Canadian dollar has approached the upper target range. Assuming the Canadian government introduces a “leaning-against-the-wind” policy, the Canadian government will most likely:
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A) |
induce negative currency exposure. | |
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A strong domestic currency will lead local governments to ease interest rates. This is often referred to as a “leaning-against-the-wind” policy that induces positive currency exposure.
Which of the following are most likely to occur if the Canadian real rate of interest increases? There will be a(n):
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A) |
a positive currency exposure from bond investors. | |
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B) |
capital flow out of Canada. | |
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C) |
increased demand for Canadian currency from abroad. | |
An increase in the Canadian real rate of interest will cause capital to flow into Canada from foreign investors. This increased demand for Canadian dollars causes an increase in the value of the Canadian dollar. This in turn will create negative currency exposure for bond investors. | 
发表于 2011-3-29 15:37
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