BBB4M – International Business



BBB4M – International Business

Barriers to Trade

Pages 28 – 37

Assignment 2 - Currency Fluctuations

|1. |a) |In past lessons we have identified many factors that can have an affect on the value of a country’s currency. List as many |

| | |as you can. |

| |b) |Give 3 reasons why the CAD has risen against the USD. |

|2. | |Exploring the site. Note that you are expected to know the most important currencies and their respective |

| | |countries as displayed in the cross rate table. |

| |a) |Use the quick cross rate table to perform the following conversions: |

| | |Mexican Pesos ( Euros |

| | |British Pounds ( Russian Rubles |

| | |2000 CAD ( Chinese Yuan |

| |b) |Click on site map located in the bottom right hand corner of the screen. Click on the Full Universal Currency Converter. |

| | | |

| | |Perform the following conversions: |

| | |NOK (Norwegian Kroner) ( SGD (Singaporean Dollar) |

| | |THB (Thai Baht) ( HKD (Hong Kong Dollar) |

| | |ARS (Argentine Peso) ( BRL (Brazilian Real) |

| | |25 KWD (Kuwait Dinar) ( LAK (Laotian Kap) |

| |c) |Perform the KWD ( LAK transaction, without the aid of the on-line converter to get the conversion directly, using a pen and |

| | |calculator only. You will need to perform this task on tests and on the final exam. |

|3. | |Why are the CAD/USD, CAD/UK Pound Sterling, and CAD/Yen exchange rates so important to Canadian businesses and exporters? |

| | | |

| | |Which Canadian industrial sectors have benefited from a strong dollar and which have been adversely affected? Some research |

| | |may be needed here. |

|4. | |Scroll down further on the site to the Historical Interactive Converter. |

| | | |

| | |Find the CAD/USD exchange rate on Feb 1 2000. Compare this conversion rate with today’s latest exchange rate. Calculate |

| | |the percent increase in the value of the CAD relative to the USD. |

| | |Beginning Dec 01 2004 and ending Dec 31, did the CAD strengthen or weaken against the AUD during this period? |

| | |How much would a Japanese buyer have to spend in Yen to buy a shipment of goods worth 100,000 CAD? |

| | |What was the currency of Spain before it adopted the Euro? |

| | |Suppose an investor has two options: Invest 1000 000 CAD on Sept 01, 2004, @ 4% for 1 year in a Canadian bank; or, convert |

| | |the money into Pounds Sterling on Sept 01, 2004 and invest the Pounds @ 5% for 1 year in a U.K. bank. Perform the necessary|

| | |calculations and decide which option is best for the investor given that she must convert the Pounds Sterling into CAD on |

| | |Sept 01, 2005? If the answer is not what you expected, try to provide an explanation using historical exchange rate |

| | |information. |

|5. |a) |Can you provide a clear and concise explanation as to why an exporter might want to consider using a forward contract? |

| |b) |Can you explain clearly how it is possible for an international company to earn a profit even if its performance in its |

| | |domestic market is yielding a loss? |

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