The past month has seen a rise in world demand for oil, where Canada is an exporter of oil. Also there is been an increase in the Canada-U.S. interest differential. Show using diagrams the effects on these 2 events on the value of the Canadian dollar and the quantity of Canadian dollars exchanged in the foreign exchange market, using supply and demand analysis. Label your diagrams carefully. (10 marks)

Subject: MacroEconomics

Topic: The Exchange Rate and the Balance of Payments

(Chapter 9 from textbook Macroeconomics, Canada in the Global Environment, 10th or 11th edition, Parkin and Bade)