This assignment is for Module 6 and covers Chapter 25 from the text. Students should answer all questions. All questions
are of equal value.
Question 1
a) Briefly define the current account, capital account and official settlements account of a country’s balance of
payments.
b) Briefly explain why the sum of these accounts must balance.
c) Explain why the demand curve for Canadian dollars slopes down.
d) Explain why the supply curve for Canadian dollars slopes up.
Question 2
Use separate demand/supply diagrams for the Canadian dollar to illustrate whether following developments would
increase/decrease the value of the loonie. Be sure to explain the reasoning behind any shift(s) in the curves.
a) Canadian interest rates fall while US rates remain steady.
b) Demand for Canadian oil exports rise.
c) New study in the USA finds eating Canadian lobsters reduces heart disease.
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Question 3
Use a separate demand/supply diagrams for the Canadian dollar to illustrate the following impacts on the Canadian dollar
exchange rate. Make direct reference to your diagram in your explanation.
a) Rising demand for Canadian oil exports is impacting the dollar and effecting Canadian exports of other goods.
b) Rising demand for Canadian oil exports is impacting the dollar and effecting imports into Canada.
Question 4
a) Use any credible source you desire (but provide your source) and summarize the reason(s) behind the recent
movements in the value of the Canadian dollar (relative to the US dollar).
b) Who are the “winners and losers” associated with a falling loonie?
c) Who are the “winners and losers” associated with a rising loonie?
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