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: A) ease interest rates. B) induce negative currency exposure. C) raise interest rates. Your answer: A was correct! 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. Can someone please explain what “a positive currency exposure” means?
positive relationship between currency and bond prices, known as the government intervention theory
yes. thank you. that makes sense because under leaning against the wind, interest rates fall, and when rates fall, bond prices rise ---- and when rates rise there will probably be a “negative currency exposure”