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Canadian Dollar Fluctuations

 The Canadian dollar has declined by over thirty percent versus the United States dollar,
since it was at its highest in 1970. The reason for this is mainly the following factors: the
Quebec factor, the inflation factor, the productivity factor, the growth in government and taxes
factor, and the commodity price factor.These all come together to bring us to what the
Canadian dollar is worth compared to the U.S. dollar today.

The Quebec factor is partly responsible for the decline."It is no coincidence that the
Canadian dollar began its descent to 69 cents in November 1976."? That was the month in which
the Parti Quebecois shocked political observers by winning the Quebec provincial election. It
was thefirst, and still only, party explicitly committed to separation to assume the reins of power
in Quebec City. "While it is generally agreed that there is a risk premium built into the Canadian
dollar because of the threat of separation, no one believes that threat is responsible for the
whole, or even the bulk, of the currency’s decline.;?
The Canadian dollar is much lower because of separation because of what happened
during the 1980 Quebec referendum. At the beginning of the campaign, in March 1980, polls
showed the Yes side leading. In response, the Canadian dollar very quickly dropped from 87
cents to 83 cents. But in May, when the No side won a resounding 60-40 per cent victory over
the separatists, the Canadian dollar leaped back up. It was at 87 cents again in June. The
currency’s movement in that period suggests a minimum 4 cent risk premium because of
separation.
This is roughly consistent with what happened in the subsequent October 1995
referendum. On the night of the referendum, the television networks were showing the Yes side
with a substantial lead. The Canadian dollar immediately dropped a cent. Then, however, the
votes from Montreal were counted and the m…

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