Internet Exercises


1			Central Banks http://www.witiger.com/internationalbusiness/centralbanks.htm "Asians are America's bankers right now." A curious comment? Not really. The U.S. dollar is presently in its worst slide against major European currencies since 1987 while the Canadian dollar is riding a high compared to the U.S. However, experts agree that while Europe has traditionally been the focus of attention when the U.S. dollar goes into a slide, times have changed and it is Asia that should now be in the spotlight. Last year, Asians accounted for some 40% of the foreign investment flows into the U.S. So what does this mean for the U.S.? The U.S. has become dependent on Asia (while Canada has become more dependent on the U.S.). If the Asians pull out, and there are already signs that a pull out has started, there is little else to support the dollar. The length of the war against Iraq is also threatening the strength of the dollar. Go to www.exchangerate.com http://www.bankofcanada.ca/en/rates/exchform.html on the Bank of Canada site and track the value of the dollar against both the euro and also several Asian currencies. Then, consider the effect of Asian investments on the value of the dollar. Does it make any difference to the U.S. whether investments are coming from Europe or from Asia? Why or why not? How can the fundamental approach to forecasting exchange rates be used to predict the value of the dollar in the situation outlined above? See also http://www.bankofcanada.ca/en/about/edu_resources.html Source: "Sliding Dollar's Fate May be Decided in Asia," The Wall Street Journal, 1/20/03, p. C1.




2			The upward and downward movement of the Canadian dollar, and the consequent effect on companies exporting and importing. Basically, there are only three things that can happen 1. the dollar is very high, i.e. high 80's to low 90's - which means o it is difficult for Canadian exporters to sell their commodities, goods and services o those commodities that do get sold generate profits that drives the dollar higher o it is cheaper to import products from the U.S., Asia and Europe o it is less expensive for Canadians to travel overseas for business and tourism 2. the dollar is very low, i.e. high 60's - which means o it is good for Canadian exporters selling their commodities, goods and services - like cars and car parts into the U.S. market and food commodities to Asia o it is expensive to import products from the U.S., Asia and Europe o it is expensive for Canadians to travel overseas for business and tourism - so we might see more tourism dollars spent at home and more information technologies used to cut business travel costs 3. the dollar is neither very high, nor very low, i.e. mid - 70's o some parts of the Canadian economy do OK, others suffer a little bit Factors affecting the exchange rate read http://www.bankofcanada.ca/en/backgrounders/bg-e1.htm From http://www.witiger.com/internationalbusiness/4xCdnDollarissues.htm From http://www.witiger.com/internationalbusiness/4x.htm

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