The paper "Rise of the Canadian Dollar" is a perfect example of a finance and accounting case study. Canada’ s Currency has sustained its rise by more than 30 percent against the US dollar. In this period the Canadian dollar has risen against the US dollar than any other currency of major US trading partners such as the Chinese Yuan and Mexican peso which have retained their value against the US dollar. Current appreciation is the second time in the history of postwar that the dollar has appreciated by over 15 percent against US counterparts.
As from 1986-1991, the dollar rose from 72 cents to almost 90 cents which is a cumulative rise of 23 percent. Currently, the appreciation is faster and larger than the episode of 1986-1991. Due to this, there have been negative impacts and inequality effects in various sectors of the economy and also in various provinces. Most affected are the exports especially the non-energy exports with employment in the manufacturing sector is very severely affected than in earlier episodes. If the dollar then stays at over 85 cents, the prediction is that Canada’ s share will fall from 12 percent currently to below 9 percent by the first three months of 2008. Question One: What is the role of the federal and the provincial governments in dealing with unequal effects brought by the rise of the Canadian Dollar? Unequal effects brought by the rise in the Canadian dollar Unequal effects have been felt by both importers and exporters in all sectors of the economy.
Exporters who seem to be more affected by the rise in Canadian Dollar are quickly curtailing any shipments of their goods to the United States markets and potentially opting to seek other markets for their products unlike the importing companies who are happy with the rise in the Canadian dollar since they are able to purchase the US-made commodities at reduced prices thus reducing their costs of carrying out their businesses.
The importer's profits and sales have both high chances of rising owing to the appreciation of the currency. Exporters are enduring low profits rates due to the appreciation of the currency since most of the exports are notably commodities such as electronic products and automotive which are always priced in US dollars.
As a resulting rise in the Canadian dollar has not changed the selling prices, that is, the prices that are paid by the buyers. What has changed is the price that the exporters in the country (Canada) will receive when the US dollar revenue from exports are converted into the Canadian dollar at a higher rate of exchange. These conversions from the US dollar to the Canadian dollar in financial statements translate into low profits.
Effects across the industrial sectors have been reported to be unequal. Focusing largely on the manufacturing sector the appreciation of the currency depends on exports, that is, the ratio accruing between production to exports and also the content of import. The variable to be put into consideration is the level of dependence on exports. According to TD bank, there are five industries that account for up to 50% of exports, that is, the forest industries, computer and electronic, transportation and equipment, electrical equipment and components. Companies have felt the unequal effects of currency appreciation as a result of import content variation.
Those that have high foreign content exports have felt least effects than those with low foreign content in their exports. (Wesson, 2007)