Question 1

Currency speculators sell Canadian dollars if they think that Canadian interest rates will fall.

Accepted Answer

Currency speculators sell Canadian dollars if they think that Canadian interest rates will fall because this would decrease the demand for Canadian dollars and decrease its value relative to other currencies.

Question 2

When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the FOREX market decreases.

Accepted Answer

When demand for Canadian exports increases, it actually leads to an increase in demand for Canadian dollars in the FOREX market as more foreign buyers need to exchange their currency for Canadian dollars to purchase the exports.

Question 3

Currency speculators buy Canadian dollars if they think that world prices for Canadian resources will rise.

Accepted Answer

Currency speculators buy currencies that they think will appreciate in value, and one factor that can affect the value of the Canadian dollar is the demand and prices for Canadian resources. If speculators believe that the prices for Canadian resources such as oil, timber, and minerals will increase, they may buy Canadian dollars in anticipation of increased demand for those resources and a subsequent increase in the value of the currency.

Question 4

When Canadian real GDP decreases, the import effect alone causes the Canadian dollar to depreciate.

Accepted Answer

When Canadian real GDP decreases, demand for imports typically falls, reducing the demand for foreign currencies and potentially causing the Canadian dollar to appreciate, not depreciate, due to the import effect alone.

Question 5

When Canadian real GDP decreases, the growth effect alone causes the Canadian dollar to depreciate.

Accepted Answer

The growth effect refers to the negative impact of lower real GDP on investor confidence and expectations for the future performance of the Canadian economy, which can cause a decrease in demand for the Canadian dollar and a subsequent depreciation in its value.

Question 6

An increase in Canadian interest rates relative to other countries causes the Canadian dollar to appreciate.

Accepted Answer

When Canadian interest rates increase relative to other countries, it makes the Canadian dollar more attractive to foreign investors seeking higher returns. As a result, the demand for Canadian dollars increases, causing the value of the Canadian dollar to rise, or appreciate, relative to other currencies.

Question 7

Changes in Canadian GDP is the economic force that causes opposite effects on the value of the Canadian dollar.

Accepted Answer

When Canadian GDP increases, it often results in an appreciation of the Canadian dollar. On the other hand, when Canadian GDP decreases, it often results in a depreciation of the Canadian dollar. Therefore, changes in Canadian GDP can cause opposite effects on the value of the Canadian dollar.

Question 8

A decrease in Canadian interest rates relative to other countries causes the Canadian dollar to appreciate.

Accepted Answer

When Canadian interest rates decrease relative to other countries, it means that investors can earn higher returns by investing outside of Canada. This decreases the demand for the Canadian dollar, causing it to depreciate rather than appreciate.

Question 9

When most speculators expect the Canadian dollar to appreciate, they increase the demand for our currency in the FOREX market so, the Canadian dollar appreciates.

Accepted Answer

When there is an increase in demand for a currency, its value appreciates in theFOREX market. Therefore, if speculators expect the Canadian dollar to appreciate, they will increase the demand and thus cause the Canadian dollar to appreciate.

Question 10

Currency speculators buy Canadian dollars if they think that world prices for Canadian resources will fall.

Accepted Answer

Currency speculators would actually sell Canadian dollars if they expect the prices for Canadian resources to fall, as it would decrease the demand for the Canadian dollar.

Question 11

When most speculators expect the Canadian dollar to appreciate, they increase the supply of our currency in the FOREX market so, the Canadian dollar appreciates.

Accepted Answer

If speculators expect the Canadian dollar to appreciate, they would actually decrease the supply of our currency in the FOREX market by buying more Canadian dollars, which would increase demand and thus cause the appreciation of the currency.

Question 12

When world prices for Canadian resource exports fall, demand for Canadian dollars in the FOREX market increases.

Accepted Answer

When world prices for Canadian resource exports fall, demand for Canadian dollars in the FOREX market actually decreases because the decrease in prices indicates a decrease in demand for Canadian goods, which translates to a decrease in demand for the Canadian dollar.

Question 13

When Canadian real GDP increases, the growth effect alone causes the Canadian dollar to depreciate.

Accepted Answer

When Canadian real GDP increases, it can lead to an increase in demand for Canadian goods and services, which can strengthen the Canadian dollar. However, other factors such as changes in interest rates or global economic conditions can also affect the value of the Canadian dollar. Therefore, it is not accurate to say that the growth effect alone always causes the Canadian dollar to depreciate.

Question 14

When Canadian real GDP decreases, demand for Canadian dollars in the FOREX market increases.

Accepted Answer

When Canadian real GDP decreases, it signals a weaker economy and loss of investor confidence. This reduces the demand for Canadian dollars in the FOREX market, leading to a decrease in its value relative to other currencies.

Question 15

When R.O.W demand for Canadian exports increases, demand for Canadian dollars in the FOREX market increases.

Accepted Answer

When demand for Canadian exports increases, more foreign buyers need Canadian dollars to purchase those exports, leading to an increase in demand for Canadian dollars in the foreign exchange market.

Question 16

When world prices for Canadian resource exports fall, demand for Canadian dollars in the FOREX market decreases.

Accepted Answer

When world prices for Canadian resource exports fall, foreign buyers will need to spend less money to purchase the same amount of Canadian resources. This will decrease demand for Canadian dollars in the FOREX market as there will be less need to exchange other currencies for Canadian dollars to purchase these resources.

Question 17

Currency speculators sell Canadian dollars if they think that Canadian interest rates will rise.

Accepted Answer

Currency speculators are more likely to buy Canadian dollars if they think that Canadian interest rates will rise, as higher interest rates typically increase demand for that currency, potentially leading to an appreciation in its value.

Question 18

When Canadian real GDP increases, demand for Canadian dollars in the FOREX market increases.

Accepted Answer

When real GDP of a country increases, it signifies a growing economy and investor confidence, leading to an increase in demand for its currency in the foreign exchange market. Therefore, an increase in Canadian real GDP would lead to an increase in demand for Canadian dollars in the FOREX market.

Question 19

A decreasing Canadian inflation rate differential causes the Canadian dollar to depreciate because our exports become relatively more expensive in international markets.

Accepted Answer

A decreasing Canadian inflation rate differential typically makes Canadian goods cheaper relative to those in other countries, potentially leading to an appreciation of the Canadian dollar as demand for Canadian exports increases.

Question 20

An increase in the world price of oil causes the Canadian dollar to appreciate.

Accepted Answer

Canada is a major oil exporter, so an increase in the world price of oil will lead to an increase in demand for Canadian dollars, as buyers need to purchase Canadian dollars to pay for the oil. This increased demand for Canadian dollars strengthens the currency, causing it to appreciate.

Quiz 10: Trading Dollars for Dollars Exchange Rates and Payments With the Rest of the World