1.Which bond would expect to pay a higher interest rate? A bond issued by the federal government or a bond issued by Prince Edward Island

2.Suppose that the Bank of Canada sells 100 million pounds sterling from its foreign exchange reserves, and that the exchange rate is $1.60 Canadian per pound sterling.

a.Explain what happens to the Canadian money supply.

b.Now suppose that the Bank of Canada does not want the money supply to change. What would it need to do to sterilize its foreign exchange market operation?