Imagine that the value of the US dollar remains high compared to the Canadian dollar for many months. What effect will this most likely have on the amount of goods the US exports to Canada? A. It will decrease US exports to Canada. B. It will increase US exports to Canada greatly. C. It will increase US exports to Canada slightly. D. The value of the dollar does not affect how much the US exports. Please select the best answer from the choices provided A B C D

The correct answer is:

It will decrease US exports to Canada (A)

Explanation:

when the value of a currency increases in relation to another, it means the people in the country with the lower valued currency will pay more in exchange for the other currency. This affects imports and exports also. Let me use the example below to explain this scenario:

if the exchange rate for 1 US dollars to Canadian dollars is 2, this means that every US dollar is equivalent to 2 Canadian dollars. If there is a trade on electronic equipment between a Canadian and a US  entrepreneur, at an exchange rate of 2, and say one of the equipment costs 10 US dollars, the Canadian will have to pay 20 Canadian dollars (10 × 2) for each of the items. If the value of the US dollar increases to 5 US dollars for every Canadian dollar, and the cost of the equipment remains the same, the Canadian will now spend 50 Canadian dollars (10 × 5) for a piece of the same equipment. This will make the Canadian seek cheaper alternatives, hence the rate of export from the US will reduce because the Canadian buyers will for cheaper alternatives.

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Explanation:

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