Response to the following problem:
Interaction of Exchange Rates Assume that there are substantial capital flows among Canada, the United States, and Japan. If interest rates in Canada decline to a level below the U.S. interest rate, and inflationary expectations remain unchanged, how could this affect the value of the Canadian dollar against the U.S. dollar?
How might this decline in Canada's interest rates possibly affect the value of the Canadian dollar against the Japanese yen?