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Price of Currency: Canadian Dollar

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Explain how each of the following will affect the "price" of the Canadian dollar.
(a) The number of foreign tourists heading to Banff National Park in Alberta increases.

(b) An American auto manufacturer buys $20 million in auto parts from a Canadian company.

(c) Prices in Canada begin to fall more rapidly than prices in the rest of the world.

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Solution Summary

This solution looks at how the number of foreign tourists in Alberta, purchase of auto parts from a Canadian company and price decrease in Canada affects the Canadian dollar. It also defines the currency exchange and explains how a currency undergoes inflation and depreciation.

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Exchange rate is the price of one currency in terms of another currency. For example, Canadian $/USD is the price of Canadian dollars in USD. Its value is determined by the demand of goods and services from Canada by Americans. If the demand for goods and services in Canada by American increases, ...

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