TRU professor explains currency exchange rates

Karla Karcioglu, Contributor Ω

One Canada's newest $100 bills. - Photo by Di Bedard/ Flickr Creative Commons

One Canada’s newest $100 bills. – Photo by Di Bedard/ Flickr Creative Commons

Foreign exchange rates generally fluctuate based on the number of people demanding a currency, Belayet Hossain, a TRU assistant professor of economics, told students.

Hossain spoke in the Alpine Room in the Campus Activity Centre on Feb. 6 as part of International Days. He explained to students the complexities of foreign exchange rates, why they fluctuate and what it means for Canada.

The flexible exchange rate, used by Canada, fluctuates based on market forces.

“There are people who demand foreign currency,” Hossain said, “and there are people who supply it.”

Suppliers of Canadian currency include people who buy foreign goods, people who visit other countries and Canadians who invest in other countries.

With more demand, the price of the Canadian dollar goes up, Hossain said. When the Canadian dollar’s value goes up, or appreciates, Canadian imports become cheaper and more will be imported. However, export prices will increase and demand will decline.

This affects Canadians in two ways, Hossain explained. If import prices fall then most products found on store shelves will become cheaper. The negative result is people in trade industries are at risk as export demand falls.

“Canada is one of the countries that depends heavily on trade,” Hossain said, adding trade is heavily affected by fluctuations in the exchange rate.

Other factors that can influence fluctuation include trade policies, inflation, political factors, market psychology and interest rates, which for Canada has remained notoriously low.

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