Question

1. Do pulp and paper investment and cross border shopping respond differently to fluctuations in exchange rates? Why or why not?
2. What other industries or behaviours might respond to changes in the exchange rate? How will they respond?
3. Who gains and who loses from appreciations in the Canadian dollar?

Answer 1

Ans.

The pulp and paper industry comprises of businesses that convert dominatingly woody plant material into a wide assortment of pulps, papers and paperboards. The Canadian business started during the 1800s, and has experienced progressive changes throughout the years. Most as of late, the move from newsprint to electronic media made the business decrease; in any case, pulp and paper stays a crucial piece of the Canadian economy, particularly for remote and northern networks.
Pulp and paper investment and cross border shopping may not respond differently to fluctuations in exchange rates because of the purchasing rate parity from exchange rate fluctuations perspective.
Purchasing rate parity says that nominal exchange rates adjust so that identical goods will have the same price in different markets. Or, put differently, the purchasing power of different currencies is equalized for a standardized basket of goods.

When there is appreciations in the Canadian dollar, the exporters in Canada may be at disadvantage. Consider the case of an individual who wants to purchase goods from Canada. The individual would be able to buy fewer of these goods if the nominal spot exchange rate for the Canadian currency appreciated.