The worth of the U.S. dollar influence the economy of Canada through a number of ways, including its exports, imports, and local and foreign businesses, which in turn disrupts the average Canadian citizens.Typically, a hike in the worth of one currency affects exporters as it increases the costs of their goods in the foreign countries. Therefore, an increase in the value and worth of a currency will make imports to increase and exports to decrease.
EXPORTS DECREASES WHEN CURRENCY EXCHANGE RATES INCREASE
Suppose a Canadian manufacturer sells hockey sticks to retailers for the price of $20 Canadian each. Before the change in currency, it would cost American retailers $10 each per stick, since one American dollar is worth two American ones, but after the American dollar falls in value, American companies have to pay $20 U.S. dollars to purchase a stick, multiplying the price for those companies.
When the price of any good goes up, we should expect the quantity demanded to fall, thus the Canadian manufacturer will likely not make as many sales; however, note that Canadian companies are still receiving the $20 Canadian per sale that they did before, but they're now making fewer sales, which means their profits are probably only marginally impacted.It is pretty common for Canadian companies to price their goods in U.S. Dollars if they export many goods to the United States. In that case, before the change in currency, the Canadian company was getting $5 U.S. from the American company, taking it to the bank, and getting $10 Canadian in return, meaning they would only be receiving half as much income as they had before.
Looking at either of these scenarios, we see depict that, all things being equal, a rise in the value of the Canadian Dollar (or alternative a fall in the value of the U.S. Dollar), causes reduced sales for the Canadian manufacturer (bad), or reduced revenue per sale (also bad).
IMPORTS RISE WHEN CURRENCY EXCHANGE RATES INCREASE
The story is not the same for Canadians who tend to import goods from the United States. In this scenario, a Canadian retailer who is importing baseball bats from a U.S. company before the increased exchange rate for $20 American Dollars is spending $40 Canadian to purchase these bats.
However, when the exchange rate goes to equitability, $20 equals $20 Canadian. Now Canadian retailers can purchase U.S. goods for halved the price they were before. This favors Canadian traders, as well as the consumers, as some of the savings are likely to be passed onto the consumer. This is also great news for American manufacturers, as now Canadian retailers are likely to purchase more of their goods, so they will make more sales, while still getting the same $20 American per sale as they were getting earlier on.
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