# Pegged Currency and Internatio

Pegged Currency and International Trade Assume that Canada decides to peg its currency (the Canadian dollar) to the U.S. dollar and that the exchange rate will remain fixed. Assume that Canada commonly obtains its imports from the United States and Mexico. The United States commonly obtains its imports from Canada and Mexico. Mexico commonly obtains its imports from the United States and Canada. The traded products are always invoiced in the exporting country’s currency. Assume that the Mexican peso appreciates substantially against the U.S. dollar during the next year.

a. What is the likely effect (if any) of the peso’s exchange rate movement on the volume of Canada’s exports to Mexico? Explain.

b. What is the likely effect (if any) of the peso’s exchange rate movement on the volume of Canada’s exports to the United States? Explain.

# Pegged Currency and Internatio

Pegged Currency and International Trade Assume the Hong Kong dollar (HK\$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Last month, a HK\$ = 0.25 Singapore dollars. Today, a HK\$ = 0.30 Singapore dollars. Assume that there is much trade in the computer industry among Singapore, Hong Kong, and the United States and that all products are viewed as substitutes for each other and are of about the same quality. Assume that the firms invoice their products in their local currency and do not change their prices.

a. Will the computer exports from the United States to Hong Kong increase, decrease, or remain the same? Briefly explain.

b. Will the computer exports from Singapore to the United States increase, decrease, or remain the same? Briefly explain.

# Pegged Currency and Internatio

Pegged Currency and International Trade. Assume that Canada decides to peg its currency (the Canadian dollar) to the U.S. dollar and that the exchange rate will remain fixed. Assume that Canada commonly obtains its imports from the United States and Mexico. The United States commonly obtains its imports from Canada and Mexico. Mexico commonly obtains its imports from the United States and Canada. The traded products are always invoiced in the exporting country’s currency. Assume that the Mexican peso appreciates substantially against the U.S. dollar during the next year.

a. What is the likely effect (if any) of the peso’s exchange rate movement on the volume of Canada’s exports to Mexico? Explain.

b. What is the likely effect (if any) of the peso’s exchange rate movement on the volume of Canada’s exports to the United States? Explain.