Question

1. a) If you could buy a part from Canada for 80 Canadian dollars or buy a part in the US for $55, which supplier would you choose if the indirect exchange rate is 1.381 CAD / 1 USD?

2. If the Canadian exchange rate went to 1.481 CAD / 1USD, which supplier would you choose?
3. (5 pts) Does a US exporter benefit from the strengthening of the US dollar? Explain

Answer 1

A. this represents a appreciation in United States dollar and depreciation in Canadian Dollar so I will be choosing Canadian supplier as it will be helping me with leser payments because the Canadian Dollar has actually depreciated in context of American Dollars.

B. United States exporter will not be gaining from strengthening of United States dollar, because it will mean that the value of United States companies and products has gone higher and the value of other currencies has gone lower so other countries will not be buying from United States because its goods will be competitively priced higher than other goods because of exchange rate difference and appreciation in United States dollar.