The Canadian dollar would depreciate on the foreign exchange market if:
A) Canadian consumer tastes change in favor of goods produced domestically
B) The profitability of assets in Canada rises relative to the profitability of assets abroad
C) Canada experiences a disastrous wheat-crop failure,leading to imports of more wheat
D) Canada realizes technological improvements in the production of manufactured goods,leading to relatively low costs for Canada

Question

Quizplus · Accepted Answer

If Canada experiences a disastrous wheat-crop failure, it would result in imports of more wheat. This would increase the demand for foreign currency, leading to a depreciation of the Canadian dollar on the foreign exchange market.

Answer: A, D
 None of these options would directly lead to a depreciation of the Canadian dollar. A change in consumer tastes or technological improvements in the production of manufactured goods may have some impact on trade and the balance of payments, but they are unlikely to result in significant changes in the demand for Canadian currency on the foreign exchange market. In the case of B, if the profitability of assets in Canada rises relative to the profitability of assets abroad, it could lead to increased demand for Canadian currency, resulting in an appreciation rather than a depreciation of the Canadian dollar.

The Canadian Dollar Would Depreciate on the Foreign Exchange Market