As a new member of the international department at your company, you have been asked to conduct a review class on the foreign exchange market. You remember something about this from your undergraduate classes, but you are not quite sure how to proceed. The company library has older texts and other information, but you want to present more recent views on how to manage this important aspect of the company. International sales produce almost 35% of all revenues and are expected to increase considerably in the future. In fact, the only prospects for substantial growth will depend on the correct management of international markets and finances.

In setting up the review for others in your department, you decide to begin with fundamental definitions. These definitions will be a part of the handout you will provide at the time of your presentation.

1-Explain how a 20% increase in the price of Turkish pistachios would affect the cost of the same product in Canadian dollars under the theory of purchasing power parity (PPP). What factors does this theory leave out?

2-In the long run, which four major factors affect the exchange rate?

3-State whether each of the following changes causes the Canadian dollar to appreciate or to depreciate relative to foreign currencies.

a-The price level in Canada rises.

b-The price level in Canada falls.

c-Canada imposes or increases a tariff.

d-Canada imposes or reduces a quota.

e-Demand for Canadian exports increases.

f-Demand for Canadian exports decreases.

d-Productivity in Canada increases.

e-Productivity in Canada decreases.