Answer to Question #47713 in Macroeconomics for Aditi

Question

In 2003 to 2004, the Canadian dollar appreciated against the US dollar. Explain the effects of this appreciation on each of the following.
a. Canadian importers of goods from the US
b. Canadian firms that sell commodities to US buyers
c. American tourists who come to Canada
d. US investors who had purchased Canadian securities prior to this currency appreciation

Answer 1

a. The appreciation of the currency is beneficial for importers.
Importers will find that 1 Canadian dollar now buys a greater quantity of foreign goods. Therefore, with cheaper imports they would expect to see an increase in the quantity of imports.
b. The appreciation of the currency is disadvantageous for exporters.
The foreign price of Canadian exports will increase, so US customers will find Canadian exports more expensive. Therefore with a higher price, we would expect to see a fall in the quantity of Canadian exports.
c. The appreciation of the currency makes the tourism more expansive.
So we expect a fall in the quantity of American tourists who come to Canada d. The appreciation of the currency leads to the increase in the securities value. So it would be beneficial to investors.