Question

Many commodities produced by Canadian resource extraction companies are priced in USS in international

markets. Suppose a Canadian producer sells newsprint for US$700 per tonne. What is the consequence for the CS
revenue per tonne if the exchange rate goes from US$0.89 per C$ to US$0.90 per C$

Answer 1

CS revenue per tonne reduces by C$8.74

Explanation:

the exchange rate is the rate at which one currency is exchanged for another currency.

If the exchange rate is US$0.89 per C$, it means that 1 unit of C$ is exchanged for US$0.89

If exchange rate increases to US$0.90 per C$, it can be said that the value of C$ has increased. This is because it is buying more units of US$. Thus, the value of C$ has appreciated while the value of US$ has depreciated

Revenue in C$ using initial exchange rate = US$700 / 0.89 =C$786.52

Revenue in C$ using new exchange rate = US$700 / 0.9 = C$777.78

Decline in revenue - C$786.52 - C$777.78 = 8.74