What happens to the cost of imported goods for Canadians if Canada has a balance of payments surplus under a floating exchange rate system?

Multiple choice question for Exchange-Rate Determination. Select an option, then review the explanation below.

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Other currencies will increase in value compared to the Canadian dollarThe Canadian dollar will lose value against foreign currenciesImported products will become less expensive for CanadiansImported products will become more costly for Canadians

Explanation

When Canada experiences a balance of payments surplus with floating exchange rates, the Canadian dollar tends to appreciate. This appreciation makes foreign goods cheaper for Canadians to purchase.

Practice related questions from the same subject.

1.If a Big Mac costs $3 in the United States and 2 pesos in Mexico, what is the implied purchasing power parity (PPP) exchange rate between the peso and the US dollar?
2.If Japan, with its high savings rate, invests capital overseas, how is the Japanese yen likely to be affected, and what impact would this have on Japan's trade balance?
3.If interest rates are the same on similar assets in the U.S. and abroad, and investors expect the U.S. dollar to weaken relative to foreign currencies in the future, where are investment funds most likely to move?
4.If a country's money demand equals its money supply and its balance of payments is initially balanced, which of the following changes would cause the balance of payments to shift into a surplus?
5.Which market expectation would lead to the U.S. dollar strengthening against the Japanese yen?

What happens to the cost of imported goods for Canadians if Canada has a balance of payments surplus under a floating exchange rate system?

Explanation

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