What we traded, how much we made, some numbers about how the exchange rate moved from sept 8 through oct 20 A floating exchange rate is a regime where the currency price is set by the forex market, the market in which currencies are traded, based on supply and demand compared with other currencies (International Currency). The forex unlike a stock, currency value is relative to other currency and that’s why the price is given in relation to another currency. In floating exchange rate systems long-term adjustments reflect economic strength and interest rate differentials between countries’ currency. While short-term adjustments reflect speculation, rumors and disasters. Central banks can intervene when an extreme short-term move happens. Floating …show more content…
It can raise, or lower interest rates related to the Canadian dollar (What Causes Volatility). On July 12, 2017 the Central Bank of Canada had its first interest-rate hike in seven years. This was due to the falling value of the Canadian Dollar. Interest rates affect the exchange rate of currency and shortly after raising inflation the Canadian Dollar stopped its fall seen in this graph (Bank of Canada). [Graph] The Central Bank of Canada can also intervene in foreign currency markets on behalf of the Canadian dollar. This is when the Central Bank of Canada purchases Canadian Dollars through Forex markets using foreign currencies. The core strategy goal of this is to generate a demand for Canadian dollars in these markets, thereby raising the currency value against other currencies. (What Causes …show more content…
If the price of a country's exports rises more than the price of imports, its Terms of Trade have improved. An increasing Terms of Trade indicates greater demand for the country's exports. This increases demand for the country’s currency by rising revenues from exports. If the demand for a country’s currency is high, then the value and exchange rate will also be high. This also works in reverse, if the price of exports rises by less than the price of imports, the currency's value will decrease in relation to the countries trading partners (Bergen). “The development and exportation of commodities such as crude oil, natural gas and lumber represent major sectors of Canada’s economy. (What Causes Volatility)” Exports amount to more than 45 percent of Canadian GDP. Canadas main exports were respectively: Motor vehicles and parts, consumer goods, energy products, metal and non-metallic mineral products, and forestry products. The United States buys 75% of total exports which is by far the largest destination for Canadian products. Followed by the European Union at 8%, China at 4 percent, and Japan and Mexico at 2 percent each (Canada