Monday, February 1, 2016

A Loonie, A Dollar and an Apple. A nice story of fruit and currency exchange

The Canadian dollar has taken real hit over the past few years in terms of its value relative to the US dollar.

Here is an article on how the change is value has negatively impacted the price of fruit and vegetables in Canada. I did not know this, but it says that almost all fruit and vegetables consumed in Canada are imported.  So, Canadians are VERY dependent on the value of their currency when it comes to this category of food.

I saw this and wondered how much of the price change could be attributed to the fluctuation in the exchange rate between the US Dollar and the Canadian Loonie:
"...In November 2011, one kilogram of apples cost an average of $3.35 in Canada, according to Statistics Canada. Four years later, the same amount cost $4.12..."
The percentage change in the price of apples over the 4 years was 23% (4.12-3.35/3.35 X 100).

In November of 2011 (November 11th to be exact--to pick a day in mid-month) the US dollar to Canadian Loonie exchange rate was $1.00 =  1.01 CD ("Canadian Dollar").

On November 13th, 2015 the exchange rate was $1.00 = 1.33CD.  That is a 32% increase (1.33 - 1.01/1.01 x 100).

A couple of observations.

(1)  the price of apples in Canada increased 23%, BUT not as much as the depreciation of the Loonie did over that time--- 32%.  So something else held prices in check, but the depreciation of the Loonie certainly had a big impact.

(2) If the price of apples had mirrored the depreciation of the Loonie then apples would have cost consumers $4.45 Canadian, instead of $4.12---8% more.

Looking at the price of things priced in different currencies is interesting to me.  The good itself, apples in this case, is the same regardless of where it is consumed but the price consumers pay might be drastically different primarily because of the value of the currencies traded to get the apples.

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