Countries tend to use different currencies because they have different economic situations and goals. For example, the goal for a country with a weak currency may be to invest in tourism.
Currency Strength Types
Strong
A currency that is worth more than other currencies. Good for import industry as it allows consumers to have more purchasing power
Weak
A currency worth very little in relation to other currencies Good for exporting industry and tourism
Currency Value Types
Fixed
This currency remains proportional to the value of another currency.
If it wants to be tied to another currency, it may experience fluctations based off that currency
If it wants to remain truly fixed, then it will tie itself to the value of Gold
Floating
Value of currency constantly fluctuates in response to Foreign Exchange Markets
Purchasing Currency
If you want to purchase a country’s goods or services, you must exchange currency to buy it. This is a 2 step process.
- Sell your own currency
- Purchase their currency
Floating Currency Changes
The value of floating currency will change depending on Foreign Exchange Markets. The price can be determined through Supply & Demand
Demand
Demand in this case is those people who want to buy CAD currency. CAD currency is bought when
- Purchasing Canadian exports.
- Investing in Canada
- Currency speculators (playing it like the stock market)
- Government dumping to increase CAD price
Factors that Shift Demand
- Trading partners are growing
- Canada Interest or Inflation rates rise
- Speculators feel CAD is going to rise
- Stable currency is attractive to speculators
Supply
The amount of currency offered for sale in Foreign Exchange Markets Currency is sold by:
- Importers who sell CAD to buy from other countries
- Investors who sell CAD to invest in other countries
- Speculators who sell CAD as they fear the price will drop
- Governments who sell CAD (reverse dumping) to decrease CAD price
Factors that Shift Supply
- Rise in Canadian imports
Market Shift
Appreciation: The price of the market equilibrium increases
Depreciation: The price of the market equilibrium decreases
Currency Conversion
Other → CAD