Monetary Supply and Interest Rates Analytical Essay by Nicky

Monetary Supply and Interest Rates
An analysis of how significant monetary aggregates and interest rates are in determining Big Drive Auto's expansion into Canada.
# 149671 | 877 words | 5 sources | APA | 2011 | US


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Description:

The paper discusses monetary aggregates and shows how they are a poor indicator of inflation. The paper then examines interest rate policies and explains why they have had a much more direct impact on exchange rates, and by extension, the viability of the export business in recent years. The paper therefore concludes that Big Drive Auto would view interest rates as a more important determinant in the operating decisions.

From the Paper:

"At present, the interest rates in Canada have remained stable for the past year. The rate did not decline as rapidly as the US rate, however, at the outset of the financial crisis. The US Federal Reserve slashed rates more aggressively than did the Bank of Canada. This, combined with the fact that the US dollar tends to weaken with high oil prices while the Canadian dollar, a petrocurrency, strengthens, resulted in a rapid appreciation of the Canadian dollar. This would have made Big Drive Auto's US-manufactured products more competitive in the Canadian market. However, the Bank of Canada did cut rates steadily over the autumn of 2008 and into 2009. This brought rates in line with US rates and, along with a reduction in oil prices, lowered the value of the Canadian dollar. This improved the competitiveness of BDA's product. With the interest rate expected to remain the same for the coming months, BDA will see no material change in its competitive position in the Canadian market vis-a-vis domestic producers.
"Within the Americas region, BDA has other key trading partners, specifically Mexico and Brazil. With regards to Mexico, BDA is subject to NAFTA. Even if the company utilizes Mexican production in a maquiladora, that product must be re-imported to the US before onward shipping. However, BDA is able to send its product with limited or no duties to Mexico."

Sample of Sources Used:

  • International Monetary Fund statistics, retrieved August 2, 2009 from http://www.imfstatistics.org.ezproxy.apollolibrary.com/imf/
  • Bank of Canada rates from Bank of Canada. Retrieved August 2, 2009 from http://www.bank-banque-canada.ca/en/rates/interest-look.html
  • Hale, Galina & Jorda, Oscar. (2007). Do Monetary Aggregates Help Forecast Inflation? Federal Reserve Bank of San Francisco. Retrieved August 2, 2009 from http://www.frbsf.org/publications/economics/letter/2007/el2007-10.html
  • De Gregorio, Jose. (2004). Rapid Growth of Monetary Aggregates and Inflation: the International Evidence. Central Bank of Chile. Retrieved August 2, 2009 from http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc256.pdf
  • Hirst, Monica & Hurrell, Andrew. (2005). The United States and Brazil. Routledge, New York, NY, pp.27-29.

Cite this Analytical Essay:

APA Format

Monetary Supply and Interest Rates (2011, December 28) Retrieved January 27, 2022, from https://www.academon.com/analytical-essay/monetary-supply-and-interest-rates-149671/

MLA Format

"Monetary Supply and Interest Rates" 28 December 2011. Web. 27 January. 2022. <https://www.academon.com/analytical-essay/monetary-supply-and-interest-rates-149671/>

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