Question

• Describe the currency exchange rates for Canada and any significant economic impacts on the exchange rates.
• Analyze the issues around economic exposure, transaction exposure, and translation exposure.
• Recommend to investors whether they should buy or sell futures or options in Canadian currency. Be sure to support your recommendation with calculations where necessary.

Answer 1

Currency exchange rates for Canadian dollar is considered relatively stronger to other foreign currency in comparison with the United States dollar,so Canadian dollars are always a preferred currency because it is highly strong when it comes to comparison with the United States dollar and other currencies in the world.

Since the Canadian economy has revived itself and it is one of the most developed economies of the world, it has a strong currency.

Economic events will always be having an impact on the exchange rates like one can see in the case of coronavirus,the domestic currencies have depreciated significantly.

There are often economic exposures and transaction exposure along with translation exposure associated with foreign exchange markets because these Canadian companies will always be having their subsidiaries in another countries, and they will be entering into transaction into another country so they will be exposed to risk of translation and transaction along with Economic exposure.

I will be recommending a buy into the Canadian currency futures because I think it will relatively regain the strength once this coronavirus crisis is over because the Canadian economy is relatable stronger than other developed nation economies