Question

On May 15, 2015, the exchange rate of U.S. dollars for Canadian dollars was 0.8095. It...

On May 15, 2015, the exchange rate of U.S. dollars for Canadian dollars was 0.8095. It is now June 15, 2015. A U.S.-made Chevrolet Tahoe costs $65,000 over the entire period. Has the U.S. dollar appreciated or depreciated in value relative to the Canadian dollar? Is it cheaper or more costly for a Canadian citizen to buy the car (converting Canadian dollars into U.S. dollars) on June 15, 2015? What is the Canadian citizen’s C$ gain or loss on the purchase of the car if he waits to buy on June 15?

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Answer #1

The rate of USD/CAD has moved from 0.8095 on May 15, 2015 to 0.8113 on June 15, 2015. Since, now we can buy more USD from 1 CAD, it means that USD has depreciated over the period by 0.8113-0.8095 = 0.0018 USD/CAD.

Since the CAD has appreciated and USD has depreciated, it is now cheaper to buy the car on June 15, 2015.

Price in CAD on May 15, 2015 = 65000/0.8095 = CAD 80,296.4793

Price in CAD on June 15, 2015 = 65000/0.8113 = CAD 80,118.3286

Gain on purchase if he waits to buy on June 15 = CAD (80,296.4793 - 80,118.3286) = CAD 178.1507

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