If your business or customers export
products or services outside Canada, then you are affected by
the dollar's value. If you buy supplies or key components outside
Canada, the value of the dollar affects you.
The smallest businesses, from the shop catering to tourists
to a consultant helping clients develop technology solutions,
are exposed on an almost daily basis to the ups and downs of
currencies. It's no wonder trends in the value of the dollar
are a hot topic of conversation wherever Canadians gather. Some
argue the merits of a strong dollar, while others claim a weak
dollar offers as many or more benefits.
What is key to business owners and managers, as this 10 Minute
Guide will explain, is understanding the factors affecting the
dollar and the steps you can take to manage your exposure to
currency fluctuations.
The value of the Canadian dollar is not always determined in
this country or even on this continent. It is part of the much
bigger picture of global "foreign exchange".
Foreign exchange (FX) is the term used to describe the ever-changing
pattern of values of all the world's currencies relative to
one another. The foreign exchange market operates somewhat like
other financial markets, such as stock exchanges. People who
trade currencies assess the management of countries and regions
much the same way stock traders assess the management of companies.
Reasons for confidence in the economy and political stability
of a country or region can strengthen a currency. Doubt over
these factors weakens a currency. Accordingly, exchange rate
fluctuations can affect economic fortunes and government policies
anywhere in the world.
"Canadian political, economic and social issues can take centre
stage when it comes to influencing currency value," explains
Joe August, a senior manager in Royal Bank's foreign exchange
group. "But the Canadian dollar has another dimension as well.
Since it's not one of the five most traded currencies (commonly
referred to as the "major" currencies), it can be dragged along
by any trend of a major - especially the US dollar. At times,
Canada has little direct control over developments that affect
the value of its dollar."
