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Now that the Canadian dollar is at parity with the US dollar, I’ve been hearing in the news that the Bank of Canada will be hiking interest rates. What is the reason behind this? How exactly does the dollar affect the interest rate? Thanks!

The dollar does not affect the interest rate.

What the problem is, is the parity dollar, it makes exporting companies less competitive so the Canadian gov’t would really like a lower dollar.

But The Canadian gov’t also sees an overheated economy and is worried about inflation, and they will raise interest rates to stem inflation. Unfortuneatly this will attract more money to Canada and will raise the value of the dollar furthur

Like possible CDA/US 1.10/1 in a few years

During the 1970’s interest rates on basically everything including savings and CD were well into double digits. What caused this? In order for interest rates to be that high again where would the market in general be headed? I understand how the economy and interest rates generally work but 10,12 percent seems crazy. How bad would inflation be?

If interest rates went up it will decrease the purchasing power of the people, which would in turn lead to reduction in inflation as too little money will be chasing too many products.

It’s not made clear as to what sort of economic sectors the question refers to.

I know this much at least:

-Increasing interest rates
Higher mortgage costs
Lower CPI
Prevents inflation
Slows the economy (decreasing GDP)
Higher risk of recession

-Decreasing interest rates
Lower mortgage costs
Higher CPI
Steers economy towards inflation
Speeds up the economy (increasing GDP)
Lower risk of recession

what i don’t know is how this affects 2 different sectors of the economy.
Are different sectors affected differently at all?

Yes diffrent and Non diffrent.

I’m buying a house and I close on October 31. It’s a FHA loan and right now my rate is 6.375%. Should I lock in beforehand or should I wait for the bailout package to pass? What will happen to interest rates?

Rates aren’t based on the bailout, they’re usually based on the 10 year treasury bill, which is considered a safe investment since it’s guaranteed by the US government.

T-Bills have been popular lately due to their guaranteed return, so when their yields go up, rates go down.

Rates will probably increase since people will have more confidence in the market and start selling their T-Bills and buying stocks if the bailout goes through.

These are unprecidented times though and nobody can really predict what will happen with rates. I could be 100% incorrect. If you’re happy with 6.375% rate, I would definitely lock it in.

Is there a website to check interest rates? How can you check out the interest rates in Markets? How can you check out the interest rates in each countries?

Go to bankrate.com

This seems to be the current situation; usually interest rates go up with inflation (which would make bond prices go down), but now we have substantial inflation, and interest rates are heading south. Help! Are bonds safe?

Bonds are "safe" in that they are owed to you legally. You aren’t buying stock that might not be worth anything, you are actually giving a loan that must be paid back. As long as the company or government survives, you’ll get your "loan" back with a bond.

As far as bonds value to you as for the yield – they tend to make money when the stock market drops. So you should have a portion of your portfolio in bonds to offset bad stock years.