Many commentators are perplexed when they observe a depreciation of the Canadian dollar but not a reduction in the Canadian trade deficit. Explain why there is not a precise relationship between the value of the dollar and the trade balance. Give one example of an event that would give rise to each of the following:

a. Appreciation of the Canadian dollar and a fall in Canada’s trade surplus

b. Depreciation of the Canadian dollar and a fall in Canada’s trade surplus