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ECON 1010 Chapter Notes - Chapter 25: Foreign Exchange Market, Canadian Dollar, Demand Curve

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School
York University
Department
Economics
Course
ECON 1010
Professor
Gordana Colby

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Document Summary

Demand in the foreign exchange market: the exchange rate, world demand for canadian exports. Interest rates in the united states and other countries: the expected future exchange rate. The demand for dollars is a derived demand. Buying canadian exports, goods and services, hold because you think it will bring profit. The exchange rate influences the quantity of canadian dollars for two reasons. Supply in the foreign exchange market: the exchange rate, canadian demand for imports (paying in foreign currency) Interest rates in canada and other countries: the expected future exchange. Imports effect (higher the exchange rate, the greater is the value of canadian imports, so they greater the quantity of. Expected profit effect (the greater profit from holding canadian dollars, and the smaller is the quantity of canadian dollars supplied on the foreign exchange market) Changes in the demand for canadian dollars: world demand for canadian exports (if canadian exports increases, the demand for canadian dollars increases)

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Related Questions

19) The law of demand for foreign exchange tells us that other things remaining the same, A) the higher the exchange rate, the greater is the supply of Canadian dollars. B) the higher the exchange rate, the smaller is the quantity of Canadian dollars demanded. the higher the exchange rate, the greater is the quantity of Canadian dollars demanded. D) the higher the exchange rate, the greater is the demand for Canadian dollars. E) the lower the exchange rate, the greater is the supply of Canadian dollars.

23) Which of the following factors move the demand curve for Canadian dollars and the supply curve of Canadian dollars in opposite directions? A) The interest rate differential increases or decreases. B) Canadian imports increase or decrease. C) The world demand for Canadian exports increases or decreases. D) The expected future exchange rate rises or falls. E) Both A and D above

1. What will likely happen to exchange rates involved in the following cases?

a) A fall in the Canadian interest rate relative to interest rates abroad (dollar).

b) Higher inflation rate in Japan compared to other countries (yen).

c) A severe recession in Europe (euro).

d) Canada imposes a 15% tariff on Japanese imported cars (dollars).

2. Assume Canada has a fixed exchange rate regime. Explain the effect on the foreign market if there is a decrease in foreign income. What will the Bank of Canada do to maintain the fixed exchange rate?