The Canadian Dollar

Posted: September 9th, 2013

The Canadian Dollar

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The Canadian Dollar

a) A stronger Canadian dollar would cause a general boost of the economies of related countries. One of the more specific effects is that it will increase the output of a country that experienced through the improvement of productivity per unit area. The sheltering price hypothesis explains this better. The sheltering price hypothesis suggests an increase in the competitive nature of companies that occurs when a currency’s exchange rates are lower. Factor price hypothesis means that there is more use of sophisticated equipment and software. This is because exchange rates make the costs of these to be cheaper than the use of labour. This then in turn increases the profits made by companies. However, employment rates may reduce due to application of a machine intensive production process (Vukson, 2003).

b) A stronger Canadian dollar will create winners through the achievement of better economic development in the states observed through growth of trade and investment. There will be increased bilateral trade with the country and an overall growth in the economy of Canada. With the rise of the American Dollar, the Canadian markets will achieve varied forms of wins. This is because Canadian markets will experience high rates of profits while making imports (Powell & the bank of Canada, 2005). Just as a strong Canadian dollar creates winners, it is also true that there may be losers when this happens.  A strong Canadian dollar creates losers especially for businesses that deal in the export industry. This is because for other countries to import goods from Canada, they will need to have more of Canadian dollars for them to be able to purchase goods from the country. In essence, a strong Canadian dollar makes the country’s exports expensive Canadian (Tourism Commission 2001). This scenario referred to as the Dutch-disease, is where a country loses its ability to offer competitive prices for its exports.

A strengthened Canadian dollar creates a situation where certain industries stand to gain while others stand to lose. The industries that stand to gain if the Canadian dollar is stronger include the film industry, mining industry, auto sector and the energy sector.

Auto Sector:  Looking at the Auto industry for example, this situation may or may not favour this industry depending on the strength of the Canadian dollar. The auto industry in Canada relies on assembly plants that work for foreign companies. This means that the automotive industry in the company is favoured when the Canadian dollar is strong. This is because the assembly plants will have cheaper imports for the equipments and parts that used for assembling cars and other machinery therefore the cost of production is cheaper.

Entertainment Industry: A strong Canadian dollar creates a situation where Canadian citizens enjoy a stronger purchasing power. In this regard, they will have more money to spend on leisure activities that include an increase in people going to the cinema to watch films.

Energy Sector: Energy components such as oil are commodities whose demand rarely waves. Therefore, a stronger Canadian dollar will mean more profits from exporting energy components such as coal and oil.

Mining: The mining industry like the energy industry offer essential commodities such as iron that are necessary for construction and other industries. Therefore, when the Canadian dollar is stronger, exports are more expensive and therefore more profits will accrue within the mining industry.

Reference List

Canadian Tourism Commission.,& Roper Reports Canada (Firm). (2001). Canadian vacation travel habits and the impact of the lower Canadian dollar: Fall 2000. Ottawa: The Commission.

Powell, J., & Bank of Canada.(2005). A history of the Canadian dollar. Ottawa: Bank of Canada.

Vukson, W. B. Z. (2003). Canadian dollar chaos: A 10 year history of the Canadian dollar. Toronto: G7Books.