Exchange Rates

1. Why do countries demand foreign currency

(a) _______________________

(b)_______________________

(c)_______________________

(d) ______________________

2. Why trade

(a) Benefits

i. ________________________

ii. ________________________

iii. _______________________

iv.________________________

v. ________________________

(b) Downsides

i._________________________

ii. _________________________

iii. _________________________

iv.__________________________

3. Calculate exchange rates

(a) 1 CAD =_________________________ GBP

1 GBP =__________________________ CAD

(b) 1 CAD =__________________________ EURO

1 EURO =_________________________ CAD

(c) 1 CAD = ____________________________USD

1 USD =_____________________________CAD

4. History of Canadian exchange rates

(a) the Gold Standard was a______________________________ exchange rate

(b) the Bretton Woods Agreement created a__________________ exchange rate

(c) Canada currently has a _________________________________________

5. Pegged Exchange Rate

(a) Benefits

i. ______________________________

ii.______________________________

iii. ____________________________

(b) Downsides

i. ____________________________

ii. ______________________________

(c) Maintaining the pegged exchange rate if the currency is overvalued

i. Creates a_______________________

ii. Solutions"

• __________________________
• __________________________
• __________________________
• __________________________
• _________________________

iii. Using monetary policy to maintain a pegged exchange rate:

(d) Maintaining the pegged exchange rate if the currency is undervalued

i. Creates a____________________

ii. Solutions:

• _____________________________
• _____________________________

iii. Using monetary policy to maintain a pegged exchange rate:

6. Managed float (a) Exchange rates are determined by________________________ and

(b) Purchasing power parity: _______________________________________________________

(c) Arbitrage causes purchasing power to ________________________________________

i. Definition: ______________________________________________________________

ii. How arbitrage works:

(d) Using the Big Mac Index to determine if currency is over or undervalued

i. Example 1:

ii. Example 2:

(e) Supply and Demand for currency

i. If demand for currency increases the currency___________________________

ii. If demand for currency decreases the currency_________________________

iii. If supply for currency increases the currency ___________________________

iv. If supply for currency decreases the currency____________________________

v. If one currency appreciates the other currency __________________________

vi. An increase in demand for foreign currency causes______________________

vii. An increase in demand for Canadian dollars cause_______________________

(f) Determinants of Demand i.__________________________ ii.__________________________ iii._________________________ iv.__________________________ v.___________________________ (g) Benefits of Managed Float i.____________________________ ii.____________________________ iii.____________________________ (h) Downsides to Managed Float i._____________________________ ii._____________________________

Referneces: Please watch the videos

https://www.youtube.com/watch?v=mh4joR1O5Oc&t=10s

https://www.youtube.com/watch?v=pTaqWpaXIGU

https://www.youtube.com/watch?v=E-7r0LnLBUk

https://www.youtube.com/watch?v=wq67w7NCDyE

https://www.youtube.com/watch?v=UxjLepXiTC8&feature=emb_title

https://www.youtube.com/watch?v=4GP8HbDVUk4&feature=emb_title

https://www.youtube.com/watch?v=6E9TwFQQ4Ns&feature=emb_title