ECON 1102 Lecture Notes - Lecture 15: Canadian Dollar, United States Treasury Security, Monetary Policy
15 Oct 2018
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Econ 1102 - lecture #15 - chapter 28. Interest represents the opportunity cost of holding money - therefore, as i increases, the opportunity cost increases, and the amount of money we want to hold decreases. Using a diagram showing the demand for money (downward sloping) and the supply of money (perfectly vertical), answer the following question: Negative relationship between interest rates and bond prices - if i goes up, price of bonds goes down. The higher the interest rate - the lower the bond value. Demand for foreign currency goes down and the canadian dollar appreciates. Now suppose that the bank of canada does not change its policy at all, but the federal reserve (the us central bank) decreases the us money supply. Us interest rate went up, so investors are more interested in us bonds. Decrease in the demand for canadian dollars = depreciation of the canadian dollar.
