Canada's main trading partners in terms of exports are US (78.5%), China (3.8%) and UK(2.5%). Assume that the Canadian dollar has depreciated relative to the U.S. dollar, it hasappreciated relative to the Chinese yuan and has appreciated relative to the UK pound. What hashappened to the value of the dollar based on the effective exchange rate? Explain.

Answered: Canada's main trading partners in terms…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Canada's main trading partners in terms of exports are US (78.5%), China (3.8%) and UK
(2.5%). Assume that the Canadian dollar has depreciated relative to the U.S. dollar, it has
appreciated relative to the Chinese yuan and has appreciated relative to the UK pound. What has
happened to the value of the dollar based on the effective exchange rate? Explain.

Expert Solution

Step 1 INTRODUCTION

Exchange rate

The price at which one currency will be exchanged for another is known as the exchange rate. Most forex rates are considered variable and alter in reaction to supply and demand in the market. Some exchange rates are influenced by or related to the worth of the local currency. Changes in exchange rates affect businesses by affecting the price of supplies imported from other countries and the demand for their products among customers overseas.

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