Question

Which statement could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

a. Canadian firms decide, because interest rates are higher, to do more investment spending.

b. Brad, a Canadian resident, decides to spend his savings on a trip to Hawaii.

c. Canadian net capital outflow increases.

d. A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing.

Answer 1

Ans.- (D)

Since interest rate is higher in Canada so investors will invest more money in Canada in order to earn higher interest on their savings. As a result capital inflow increases in Canada.

Swiss bank also purchases Canadian bond instead of German board in order to earn higher interest and maximize their return.