Reference no: EM131723342

Please critique the following response and support your critique with scholars:

You've mentioned some facts which I believe that is not true!

You said: "When there is an appreciation in the Canadian dollar, the value of the Canadian dollar increases because it is worth more in terms of foreign currency, hence people will be attracted to buy more from foreign countries leading to an increase in imports and a decrease in exports." People's attraction to buy anything more does not affect exporters. Exporters are competing in international markets not domestic. The low dollar will boost international demand for exports from Canada. Having a lower loonie means Canada has a competitive edge over other countries.

You also mentioned: "A higher Canadian dollar also makes it more expensive for importers to buy from Canada. Additionally, I think that when there is depreciation in their currency, people will spend less while buying goods from foreign countries leading to a reduction in exports. While that is the case, the Canadians will buy their goods domestically," I think this is not true either. Importers won't buy anything in Canada, they sell. For example, certain commodities-such as gasoline, are priced in US dollars. So when the loonie drops, people pay more at the pumps. We should also expect to pay more for fruits and vegetables as the dollar weakens. Many of our fruits and vegetables are imported directly from the United States, so we can expect the most significant impact on the price of California crops, and Werner said this will primarily affect lower-income families (Sundstorm, 2016). The cost of doing business will also increase. Canadian businesses import 55 per cent of their machinery and equipment (Cross, 2016). When faced with higher prices, businesses will buy less machinery and equipment, and consequently limit production, which may limit employment opportunities and hurt worker wages.

Canadian governments, meanwhile, will pay more when managing debt denominated in US dollars, particularly provincial governments and their utilities (i.e. natural gas or electricity), which issue the most bonds denominated in nonCanadian currency (Cross, 2016).

Exporters benefit from a lower exchange rate. Because Canadian exporters exchange goods for US dollars, so when the loonie is relatively low, those US dollars, when repatriated, buy more Canadian dollars. But even for exporters, the benefits of a lower exchange rate are likely to be limited, because market demand is the primary driver of exports not the relative strength or weakness of the loonie.

References:

Cross, P. (2016). Weaker Loonie Hurts Canadians More Than It Helps. Retrieved fromhttps://www.fraserinstitute.org/sites/default/files/weaker-loonie-hurts-canadians-more-than-it-helps.pdf

Sundstorm, L. (2016). Here's how the declining Canadian dollar will affect you. Retrieved from https://www.vancitybuzz.com/2016/01/how-declining-canadian-dollar-affects-you/