Question

If interest rates in Canada increase relative to the rest of the world, it means that (1) Canadian bonds will provide a ____________ return than previously and (2) ___________ for these bonds will _____________. a. higher; supply; increase b. higher; demand; increase c. lower; demand; decrease d. higher; supply; decrease e. lower; demand; increase

Answer 1

The correct answer is letter "B": higher; demand; increase.

Step-by-step explanation:

The cost of borrowing money is its interest rate, calculated as a percentage of the value of a loan. Interest rates are the main yardsticks used to calculate how much return borrowers will receive. The interest rate of a country is set by its central bank. Many factors influence interest rates in the economy such as the demand and supply of money, international forces, and actions of the federal government.

In the case, in front of an increase in interest rates in Canada, bonds return will be higher which is likely to increase the demand for bonds in that country.