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What did you learn about functions of money that surprised you?
- I was surprised to learn just how much the Canadian dollar can effect the U.S. economy. The currencies can impact each other as the U.S. amounts to over 50% of Canadas exports!

Provide a real-life example of how functions of money is relevant or interesting.
- The function of money is relevant in every persons daily life. As a Canadian it is very important to understand how the Canadian dollar functions and what factors can impact function of the currency, you as a consumer hold. How those impacts in value to the dollar impact us as individuals, households and businesses.

What is the most notable information you could pass on from your findings?
- The pros and cons associated with a stroller or weaker Canadian dollar. A stormer dollar is a positive for those who ned imports or are travelling abroad however, it is negative for those who business depends on exports or people travelling to Canada.

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Inflation rates based on household group is shown in this chart. Lower-income households experienced less inflation than higher-income households, this includes renters instead of homeowners and households with no university degree.

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This graph shows expected inflation, which can determine expectations for real interest rates impacting monetary policy. A main reason of why there is a perception measurement gap include measurement factors such as: CPI basket weights representativeness, Quality adjustment, and cost of housing vs. cost of houses.

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This video mentions countless facts about the Canadian dollar and how it ties into the exchange market as an essential commodity producer. Along with factors that impact exchange rates, and how the value of the Canadian dollar can effect the economic health of the U.S.
I saw this video as valuable to my Padlet as it expands on how the function of the Canadian dollar does not only impact the Canadian markets and economy but the U.S. economy, as it accounts for more than 50% of Canadas exports. This video also mentions how oil and commodities impact the value of the Canadian dollar on the forex market.

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In this Bank of Canada video, the focus is CPI and inflation over time. The information is directed towards inflation and how it impacts the cost of living. therefore introducing inflation targeting, keeping inflation low and stable.
I chose to include this video as it provides useful information on inflation targeting and how low and stable rates means prices rise slowly. Valuable information for Canadians to plan and prepare for inflation becoming more confident when spending and saving.

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This video made by Bank of Canada, briefly speaks on the exchange fund account. Along with how the banks will use exchange fund accounts to intervene when protecting/ controlling the value of the Canadian dollar.
This video was chosen for my function of money Padlet as I believe the use of exchange funds directly impacts the Canadian dollar and represents how foreign currencies help the value of the Canadian dollar from falling or rising too quickly.

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Funds Management: Foreign Currency Holdings

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This video lists the 4 basic functions of money: A medium of exchange, a store of value, a unit of account, a standard of deferred payment. The video expands on those functions using real life scenarios to show how functions of money have accelerated todays economy.
I selected this video as it covers the basic functions of money. It provides key knowledge on how money is used in the markets through consumers and producers, goods and services.

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Forex webpage depicts the Canadian economics and strategy. Including graphs on Canadian-U.S. exchange rates, as well as prospective on inflation, Real GDP, and Canada-U.S. spread on 2 year Treasuries.
This website brings perspective on what value the Canadian dollar currently holds are what can be expected. This information is useful to those who are interested in how the foreign exchange market determines exchange rates.

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This website from the Bank of Canada aims to help people understand exchange rates. Acknowledging Canadas Floating exchange rate system, in correspondence supply and demand determine the exchange rate. Listing pros and cons associated with the appreciating/ depreciating dollar value.
Bank of Canada accurately depicts exchange rates and how they directly relate to roles in the economy. The information in the website provides insight to those looking to expand their knowledge of how exchange rates can impact an individual as well as the rest of the economy. I found the negatives and positives listed with a stronger and weaker dollar to be extremely beneficial to those who may not have a in depth understanding of economics and wish to enhance their understandings of the roles they play in the economy along with how it impacts ones self.

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Letting the currency float

If you travel, you know that sometimes you need to exchange more Canadian money to buy foreign currency, and sometimes you need less.

The value of the Canadian dollar rises or falls according to how much people in foreign exchange markets want to buy and sell it-that's what makes it float.

The Bank of Canada doesn't try to set the dollar's exchange rate. We let markets set its value. Because the Bank of Canada lets the Canadian dollar float, we can focus on setting interest rates to maintain inflation at 2 percent in Canada.

Demand for our dollar is affected mainly by demand for Canadian goods and services-the more people want to buy what we sell, the more our Canadian dollar is worth.

The strength of our economy relative to other countries also affects the dollar's value. Some specific factors that can make our dollar go up or down are:

our interest rates relative to other countries

our inflation rate relative to other countries

demand for our financial assets, like stocks and bonds

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The foreign exchange market determines how much the Canadian dollar is worth. At the Bank of Canada, we very rarely intervene to support its value.

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This website looks at what determines exchange rate of the Canadian dollar. Identifying factors that increase or decrease the value of the Canadian dollar and how. Along with an explanation on recent fluctuations in value of the Canadian dollar.
I included this website in my function of money Padlet as it is essential to recognize the influencing factors that determine our currencies value, along with understanding why these factors appreciate or depreciate the value of any given currency.

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From the beginning of World War II until 1950, and again from 1962 to 1970, the value of the Canadian dollar was fixed in relation to the U.S. dollar. The Bank of Canada was responsible for intervening in the marketplace to maintain the fixed value of the currency.

Now, the exchange rate between the Canadian dollar and any foreign currency is determined by the forces of supply and demand, that is, like the value of any other openly traded good or service. Factors that increase (or decrease) demand for the Canadian dollar, or that decrease (or increase) demand for foreign currency, place upward (or downward) pressure on the exchange rate.

Factors Affecting the Value of the Canadian Dollar

Economic theory and empirical evidence have identified factors that, in isolation from one another, have predictable effects on exchange rates. However, predicting exchange rate movements is difficult because these factors interact at the same time. Often, the reasons underlying recent movements are evident only in hindsight.

The main factors known to influence the value of the Canadian dollar are:

Interest rates: Relatively higher interest rates in Canada increase foreign investors' demand for Canadian dollar-denominated securities. However, the rate of return of foreign investors is dependent on the expected future performance of the Canadian dollar. If foreign investors anticipate a decline in the value of the Canadian dollar, they demand a higher interest rate on Canadian dollar securities.

Commodity prices: The value of the Canadian dollar is correlated to the strength of world commodity prices. Commodities represent a larger share of exports in Canada compared to the United States and many other countries. When commodity prices rise, Canada's terms of trade improve because its goods have become relatively more valuable. Since Canada's effective purchasing power is higher, this movement is usually reflected in a higher exchange rate. The opposite also holds: weaker commodity prices can translate into a weaker Canadian dollar.

Inflation rates: Inflation is the rate at which general price levels rise over time. If inflation in Canada were to exceed foreign inflation rates, this would reduce the purchasing power of the Canadian dollar relative to foreign currencies. That reduction would be reflected in a relative decline in the value of the Canadian dollar. The opposite is also true. Sustained, relatively low inflation in Canada has a positive influence on the exchange rate.

International trade of goods and services: When a country has a trade surplus, exports exceed imports, putting upward pressure on the exchange rate (the demand for the currency exceeds the supply). When a country has a trade deficit, imports exceed exports, putting downward pressure on the exchange rate (the supply for the currency exceeds the demand).

Foreign investment and debt payments: Inflows of foreign investment in Canada increase the foreign demand for Canadian dollars, pushing the exchange rate up. Direct investment made by Canadians abroad has the opposite effect. Debt payments made to foreigners push the exchange rate down.

Productivity: A country's productivity - the amount of output that can be produced with a given level of inputs - can be a factor in the determination of the exchange rate through its effect on relative prices and international competitiveness. For example, if productivity in Canada were to grow faster than in the United States, the prices of Canadian goods would become more competitive and, over time, Canadian output and exports would increase, leading to greater demand for Canadian dollars.

What Explains the Recent Performance of the Canadian Dollar?

From January 2002 to November 2007, the Canadian dollar increased from a low of 62 cents U.S. to 1.04 U.S. dollars due to rising energy prices and strong U.S. demand for Canadian exports.

In response to the 2007 housing market crash, in September 2007, the U.S. Federal Reserve Bank reduced its target interest rate from 5.25% to an unprecedented level of 0% to 0.25% in December 2008. As the negative impact of the related 2008 financial crisis spread to other economies, the resulting economic slowdowns and contractions triggered sharp declines in both energy prices and the U.S. trade deficit. As a result, by early 2009, most world currencies, including the Canadian dollar, had lost most of their pre-2008 gains against the U.S. dollar.

In response, the Bank of Canada lowered its target interest rate from 3% in October 2008 to a historic low of 0.25% in April 2009 and maintained it at that level until May 2010. This significantly reduced the target interest rate difference between Canada and the U.S. at a time when energy prices and Canadian exports were rebounding. These factors in turn increased the value of the Canadian dollar from 78 cents in March 2009 to 1.05 U.S. dollars in July 2011.

With a target interest rate of almost zero and the implementation of a fiscal stimulus package, the U.S. economy gradually recovered from the 2008 financial crisis. This resulted in growing productivity and employment and an inflow of investments in the U.S. Since energy prices remained relatively stable, by comparison, the Canadian dollar slowly lost its appeal and dropped below 90 cents U.S. in early 2014.

In the two following years, investors' demand for U.S. dollar-denominated assets further increased as the U.S. economy continued to improve steadily while most other developed economies struggled to recover. The weak global demand for energy and excess supply from the expansion of oil and gas extraction techniques, particularly "fracking" in the U.S., reduced energy prices in early 2016 to their lowest levels since the early 2000s. Low energy prices, combined with the strength of U.S. dollar reduced the value of Canadian dollar to below 70 cents U.S. in January 2016.

Between January 2016 to June 2018, the slow but steady recovery in energy prices increased the value of the Canadian dollar from 70 cents U.S. to 76 cents U.S.
Author: Shaowei Pu, Library of Parliament (adapted from a publication by Michael Holden)
APPENDIX
Figure 1 - The Canada-U.S. Exchange Rate, U.S. Dollar per Canadian Dollar, 1951-2018
Note: The exchange rates are monthly averages. In 2018, only monthly data from January to July are presented.
Source: Figure prepared by the author using data obtained from Statistics Canada. Table 33-10-0163-01 Monthly average foreign exchange rates in Canadian dollars, Bank of Canada, and Table 10-10-0009-01 Foreign exchange rates in Canadian dollars, Bank of Canada, monthly, accessed 23 July 2018.
Figure 2 - Real Commodity Prices and the Canadian Dollar
Note: Commodity Price Index in January 2000 = 100. The exchange rates are monthly averages. In 2018, only monthly data from January to July are presented.
Source: Figure prepared by the author using data obtained from the Bank of Canada, the Bank of Canada commodity price index (BCPI); and Statistics Canada, Table 33-10-0163-01 Monthly average foreign exchange rates in Canadian dollars, Bank of Canada, and Table 10-10-0009-01 Foreign exchange rates in Canadian dollars, Bank of Canada, monthly, accessed 23 July 2018.
Figure 3 - World Currencies' Performance Against the U.S. Dollar, Exchange Rate Index
Note: Exchange rate index in January 2001 = 100. The exchange rates are monthly averages. In 2018, only monthly data from January to July are presented.
Source: Figure prepared by the author using data obtained from the Board of Governors of the Federal Reserve System (US), U.S. Dollar Exchange rates (monthly rate), accessed 23 July 2018.
Figure 4 - Target Interest Rate Spreads and the Canadian Dollar, 2008-2018
Notes: The target interest rate spread represents the difference between the Bank of Canada's target for the overnight rate and the U.S. Federal Reserve's target for the federal funds rate. Effective 16 December 2008, the target interest rate for the U.S. is reported as a range with a lower limit and an upper limit. The rates are midweek rates (Wednesday). In 2018, only weekly data from January to July are presented.
Source: Figure prepared by the author using data obtained from the Board of Governors of the Federal Reserve System (US), Federal Funds Target Rate, Federal Funds Target Range - Upper Limit, Federal Funds Target Range - Lower Limit, and Canada / U.S. Foreign Exchange Rate; and Statistics Canada, Table 10-10-0139-01 Bank of Canada, money market and other interest rates, accessed 30 August 2018.

Categories: Economics and finance

Tags: Canadian dollar, Exchange rate

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The Canadian Dollar: What Determines the Exchange Rate? - HillNotes

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From the beginning of World War II until 1950, and again from 1962 to 1970, the value of the Canadian dollar was fixed in relation to the U.S. dollar. The Bank of Canada was responsible for intervening in the marketplace to maintain the fixed value of the currency.

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This book outlines the principles of economics, chapter 27 focuses on defining money by its functions. The learning objective for this chapter highlights the ability to explain the 4 standard functions of money. The 4 functions being; a medium of exchange, store of value, unit of account, and standard of deferred payment.
I selected this website as it provides the key functions of money, further expanding on what those functions include. The information provided in this website is useful to gain a basic understand of the functions of money and how money has progressed to become an influential component in the Canadian economy.

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Chapter 27. Money and Banking

Learning Objectives

By the end of this section, you will be able to:

Explain the various functions of money

Contrast commodity money and fiat money

Money for the sake of money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of money rests in exchanging it for goods or services. As the American writer and humorist Ambrose Bierce (1842-1914) wrote in 1911, money is a "blessing that is of no advantage to us excepting when we part with it." Money is what people regularly use when purchasing or selling goods and services, and thus money must be widely accepted by both buyers and sellers. This concept of money is intentionally flexible, because money has taken a wide variety of forms in different cultures.

To understand the usefulness of money, we must consider what the world would be like without money. How would people exchange goods and services? Economies without money typically engage in the barter system. Barter-literally trading one good or service for another-is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. For example, if an accountant wants a pair of shoes, this accountant must find someone who has a pair of shoes in the correct size and who is willing to exchange the shoes for some hours of accounting services. Such a trade is likely to be difficult to arrange. Think about the complexity of such trades in a modern economy, with its extensive division of labor that involves thousands upon thousands of different jobs and goods.

Another problem with the barter system is that it does not allow us to easily enter into future contracts for the purchase of many goods and services. For example, if the goods are perishable it may be difficult to exchange them for other goods in the future. Imagine a farmer wanting to buy a tractor in six months using a fresh crop of strawberries. Additionally, while the barter system might work adequately in small economies, it will keep these economies from growing. The time that individuals would otherwise spend producing goods and services and enjoying leisure time is spent bartering.

Money solves the problems created by the barter system. (We will get to its definition soon.) First, money serves as a medium of exchange, which means that money acts as an intermediary between the buyer and the seller. Instead of exchanging accounting services for shoes, the accountant now exchanges accounting services for money. This money is then used to buy shoes. To serve as a medium of exchange, money must be very widely accepted as a method of payment in the markets for goods, labor, and financial capital.

Second, money must serve as a store of value. In a barter system, we saw the example of the shoemaker trading shoes for accounting services. But she risks having her shoes go out of style, especially if she keeps them in a warehouse for future use-their value will decrease with each season. Shoes are not a good store of value. Holding money is a much easier way of storing value. You know that you do not need to spend it immediately because it will still hold its value the next day, or the next year. This function of money does not require that money is a perfect store of value. In an economy with inflation, money loses some buying power each year, but it remains money.

Third, money serves as a unit of account, which means that it is the ruler by which other values are measured. For example, an accountant may charge $100 to file your tax return. That $100 can purchase two pair of shoes at $50 a pair. Money acts as a common denominator, an accounting method that simplifies thinking about trade-offs.

Finally, another function of money is that money must serve as a standard of deferred payment. This means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future. Loans and future agreements are stated in monetary terms and the standard of deferred payment is what allows us to buy goods and services today and pay in the future. So money serves all of these functions- it is a medium of exchange, store of value, unit of account, and standard of deferred payment.

Money has taken a wide variety of forms in different cultures. Gold, silver, cowrie shells, cigarettes, and even cocoa beans have been used as money. Although these items are used as commodity money, they also have a value from use as something other than money. Gold, for example, has been used throughout the ages as money although today it is not used as money but rather is valued for its other attributes. Gold is a good conductor of electricity and is used in the electronics and aerospace industry. Gold is also used in the manufacturing of energy efficient reflective glass for skyscrapers and is used in the medical industry as well. Of course, gold also has value because of its beauty and malleability in the creation of jewelry.

As commodity money, gold has historically served its purpose as a medium of exchange, a store of value, and as a unit of account. Commodity-backed currencies are dollar bills or other currencies with values backed up by gold or other commodity held at a bank. During much of its history, the money supply in the United States was backed by gold and silver. Interestingly, antique dollars dated as late as 1957, have "Silver Certificate" printed over the portrait of George Washington, as shown in Figure 1. This meant that the holder could take the bill to the appropriate bank and exchange it for a dollar's worth of silver.

As economies grew and became more global in nature, the use of commodity monies became more cumbersome. Countries moved towards the use of fiat money. Fiat money has no intrinsic value, but is declared by a government to be the legal tender of a country. The United States' paper money, for example, carries the statement: "THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE." In other words, by government decree, if you owe a debt, then legally speaking, you can pay that debt with the U.S. currency, even though it is not backed by a commodity. The only backing of our money is universal faith and trust that the currency has value, and nothing more.

Watch this video on the "History of Money."

Money is what people in a society regularly use when purchasing or selling goods and services. If money were not available, people would need to barter with each other, meaning that each person would need to identify others with whom they have a double coincidence of wants-that is, each party has a specific good or service that the other desires. Money serves several functions: a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. There are two types of money: commodity money, which is an item used as money, but which also has value from its use as something other than money; and fiat money, which has no intrinsic value, but is declared by a government to be the legal tender of a country.

Self-Check Questions

1. In many casinos, a person buys chips to use for gambling. Within the walls of the casino, these chips can often be used to buy food and drink or even a hotel room. Do chips in a gambling casino serve all three functions of money?

2. Can you name some item that is a store of value, but does not serve the other functions of money?

Review Questions

1. What are the four functions served by money?

2. How does the existence of money simplify the process of buying and selling?

3. What is the double-coincidence of wants?

Critical Thinking Questions

1. The Bring it Home Feature discusses the use of cowrie shells as money. Although cowrie shells are no longer used as money, do you think other forms of commodity monies are possible? What role might technology play in our definition of money?

2. Imagine that you are a barber in a world without money. Explain why it would be tricky to obtain groceries, clothing, and a place to live.

Hogendorn, Jan and Marion Johnson. The Shell Money of the Slave Trade. Cambridge University Press, 2003. 6.

Glossary

barter

literally, trading one good or service for another, without using money

commodity money

an item that is used as money, but which also has value from its use as something other than money

commodity-backed currencies

are dollar bills or other currencies with values backed up by gold or another commodity

double coincidence of wants

a situation in which two people each want some good or service that the other person can provide

fiat money

has no intrinsic value, but is declared by a government to be the legal tender of a country

medium of exchange

whatever is widely accepted as a method of payment

money

whatever serves society in four functions: as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment.

standard of deferred payment

money must also be acceptable to make purchases today that will be paid in the future

store of value

something that serves as a way of preserving economic value that can be spent or consumed in the future

unit of account

the common way in which market values are measured in an economy

Solutions
Answers to Self-Check Questions

1. As long as you remain within the walls of the casino, chips fit the definition of money; that is, they serve as a medium of exchange, a unit of account, and a store of value. Chips do not work very well as money once you leave the casino, but many kinds of money do not work well in other areas. For example, it is hard to spend money from Turkey or Brazil at your local supermarket or at the movie theater.

2. Many physical items that a person buys at one time but may sell at another time can serve as an answer to this question. Examples include a house, land, art, rare coins or stamps, and so on.

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Chapter 27. Money and Banking By the end of this section, you will be able to: Explain the various functions of money Contrast commodity money and fiat money Money for the sake of money is not an end in itself. You cannot eat dollar bills or wear your bank account.

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In this Padlet wall we are exploring the functions of money! The main focus being the Canadian dollar and how its functions tie into the economy. Through websites, videos and images you can expect to expand your knowledge on what changes the value of the Canadian dollar, how functions of the Canadian impact you, and how the foreign exchange market determines the rate of a Canadian dollar. Along with expanding on some of the basic functions of money.