...1. How is a country’s economic well-being enhanced through free international trade in goods and services? The idea of economic well-being enhanced through free trade comes from the Theory of comparative advantage as proposed by David Ricardo which states that in presence of free trade i.e. without any trade barriers the trading between countries is not a zero sum game. Free trade will actually enhance the possibility of production as well as consumption of all the trading countries. Free trading can allow countries to be involved in production of goods and services in which they possess an absolute or comparative advantage while importing the goods and services in which they do not. This theory holds even if a country possess comparative advantage over another. With more resources freed to produce one good will increase the efficiency of one trade partner and the opportunity cost of not producing the imports can be compensated by higher production from the other trading partner. 2. Explain the mechanism which restores the balance of payments equilibrium when it is disturbed under the gold standard In gold standard whenever there is an export by country A to country B there has to be a physical transfer of gold from country B to country A. Since country A is exporting more goods to country B an influx of gold would be coming in to the country A, this will cause the exchange rate to realign as the currency are based on gold reserve. This re-alignment will cause country...
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...FINC 627.13 Summer 2016 Solutions to Quiz 1 Version A Page 1 1) Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was a) b) c) d) US$ 1 = £4.8665 US$1 = £0.2055 £1 = US$ 0.2055 none of the above 2) According to the concept of "Impossible Trinity", if a country chooses to have a pure floating exchange rate regime, which two of the three goals is a country most able to achieve? a) Monetary independence and exchange rate stability b) Exchange rate stability and full financial integration c) Full financial integration and monetary independence d) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime. 3) A small economy country whose GDP is heavily dependent on trade with Spain could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate. a) b) c) d) pegged exchange rate with the United States pegged exchange rate with the Euro independent floating managed float 4) The ________ includes all international economic transactions with income or payment flows occurring within the year. a) Capital account b) Financial account c) Current account d) IMF account 5) Which of the following groups of countries have replaced...
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...Entry, Market Development & Strategy Implementation First Canadian Edition (Czinkota/Ronkainen/Farrell/McTavish) Copyright © 2009 by Nelson Education Limited Evolution of International Trade 2 Mercantilism (1500 – 1750) Import raw materials from ‘colonies’ at low cost Positive balance of trade Exports subsidized Imports taxed Create positive balance of trade Copyright © 2009 by Nelson Education Limited Evolution of International Trade 3 Theory of Absolute Advantage Country specializes only in products they can produce efficiently Natural resources Fewest units of labour to produce Import all other products Encourages trading between countries Theory of Comparative Advantage Does not require Absolute Advantage to trade Trade to maximize labour effectiveness for the country Copyright © 2009 by Nelson Education Limited Evolution of International Trade 4 Heckscher-Ohlin Model Extends comparative advantage Factors that vary by country Labour Capital Trading based on price differences between countries Product Cycle Theory Stage 1 – innovative product, home country develops and sells domestically Stage 2 – begin export to other similar countries Stage 3 – manufacture in developing countries, sell everywhere Copyright © 2009 by Nelson Education Limited Evolution of International Trade 5 Country Similarity Theory (Linder) Country trades more with another with similar...
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...| The World Bank (IBRD) and The International Monetary Fund (IMF) | | | | | Appendix CDF Comprehensive Development Framework IBRD International Bank for Reconstruction and Development IMF International Monetary Fund LIC low-income countries SDR special drawing right Executive Summary The second half of the twentieth century was one of unprecedented economic achievement. Rapid growth in the world economy, fueled by expanding international trade and advancing technology, brought more rapid increases in living standards to more of the world's people than ever before in history. And yet, despite these significant gains, we live in a world with severe deprivation and inequality. Over one billion people one fifth of the world's population live on less than a dollar a day, and per capita incomes in some countries have been declining for decades. In the next two decades, world population will grow by another two billion people. Nearly all of them will be born in developing countries. Without action by the international community, the global divide will worsen. We live in one world, and poverty is a threat to global security and welfare. The purpose of IMF & World Bank (IBRD) is to help all our member countries develop their human potential and productive resources, thereby building the foundations for sustainable economic growth. Recent history shows that countries that pursue the right policies, operating in a growing world economy, and with...
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...International Trade CONTENTS INTRODUCTION 3 HISTORY 4 IMPORTANCE OF TRADE 5 INTERDEPENDENCE 6 LAW OF COMPARATIVE ADVANTAGE 7 BENEFITS OF DIVERSITY 7 COMPETITIVENESS 8 ECONOMIES OF SCALE 9 FREE TRADE 10 PROTECTIONISM 10 METHODS OF PROTECTIONISM 11 MEASURES OF TRADE 12 Global Trade Risk: 14 Types of Risk, Ways to Manage 14 CONCLUSION 17 REFERENCES 18 INTRODUCTION International trade has a big influence in our day-to-day lives, even if we do not realize it, it is a fact that almost every transaction or purchase we make, we are part of the global economy. This is because products or parts of the products have point of origin all over the world. International trade is the system by which countries exchange goods and services. Countries trade with each other to obtain products that are better quality, lower cost or just different from these goods produced at home. The goods and services that a country buys from other countries are called imports, and goods and services that are sold to other countries are called exports. While trade takes place mostly between businesses, companies and governments, individual also have a frequent participation on buying and selling goods internationally. Most international trade consists of the purchase and sale of industrial equipment, consumer goods, oil and agricultural products. In addition, services such as banking, insurance, transportation, telecommunications, engineering and tourism accounted have a big role and influence, to the point...
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...loans as well. A collapse of single banks can have severe and long lasting negative effects on other banks and on the real economy (Lengnick and et. al., 2013). Although the majority of the team felt most fluent with similar topics, one team member felt different; noting that it was difficult to find solace with most of the topics, but identified that income and consumption was palatable. Most Difficult Learning Objectives This week the readings proved to be quite a challenge for Learning Team C. The specific areas varied within the chapters but on a whole the team struggled with international finance. Each of the team members faced difficulty with the learning objective and topic that includes the equilibrium interest rate, comparative advantage between nations, banking systems, and international exchange. Realizing...
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...MACROECONOMICS NAME_____________ TEST 4 CHAPTERS 16,17,18,19 AND 20 Chapter 16 1) The idea of the ________ is that people make lifetime consumption plans. A) life-cycle theory of consumption B) invisible hand C) law of demand D) classical theory of investment ANSWER: ______________ 2) According to the life-cycle theory of consumption, people tend to consume ________ they earn during their early and later years. A) more than B) less than C) the same as D) an amount unrelated to what ANSWER: ______________ 3) The opportunity cost of leisure will rise if A) the wage rate increases. B) the wage rate decreases. C) nonlabor income increases. D) nonlabor income decreases. ANSWER: ______________ 4) A rise in the interest rate A) decreases the opportunity cost of consuming today. B) increases the opportunity cost of consuming in the future. C) increases the opportunity cost of consuming today. D) decreases the opportunity cost of consuming in the future. ANSWER: ______________ 5) Over time, spending on ________ is ʺsmootherʺ than spending on ________. A) durable goods; services B) nondurable goods; durable goods C) services; nondurable goods D) durable goods; service ANSWER: ______________ 6) The largest increase in the labor-force participation rate since 1950 is among A) prime-age men. B) teenagers over the age of 16. C) prime-age women. D) males in their 20s. ANSWER:...
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...international business. In this context, we focused mainly on the evolution of the international monetary system and monetary institutions that facilitate international trade and investment. (1a) Marking the benchmarks along your route (i.e. Bretton Woods, Smithsonian, Jamaica, Plaza, and the Louvre Accords, etc), trace this evolution from its origins in the gold standard, through the fixed and the floating exchange rate systems to the managed float (target zone) system we are living in today. Answer: Since known history of mankind exchange of goods and services of value had been going on between individuals, groups and tribes/nations. By the passage of time it developed through barter system to gold coins etc. In modern times starting from the last century, the evolution of institutional environment of international business and monetary system as well as monitory institutions have been developed to streamline the trade and investment among the nations. Going through the various stages of evolution from the origin in the gold standard and development to present time floating exchange rate system and to explained the workings of the international monetary system and pointed out its implications for international business we make Bretton Woods followed by Jamaica, Plaza, and the Louvre Accords, etc. To further elaborate the topic it is imperative to describe each of these concepts briefly as under: • The Gold Standard: It is monetary standard which link currencies to gold and provides...
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...International Trade As An Engine of Growth In Developing Countries: a Case Study of Nigeria (1980-2003) SECTION ONE 1.1 INTRODUCTION A ll economies are increasingly open in today’s economic environment of globalization. Trade plays a vital role in shaping economic and social performance and prospects of countries around the world, especially those of developing countries. No country has grown without trade. However, the contribution of trade to development depends a great deal on the context in which it works and the objectives it serves. In recent decades, a number of developing countries, most notably the East Asian newly industrializing countries, have been able to purposefully use the elemental force of trade to boost growth and development within a relatively short time span. At the same time many other developing countries, especially the least developed countries (LDCs), have embarked on unilateral trade liberalization in recent years, with very limited results at best in terms of increased growth and development. To act as an engine of development, trade must lead to steady improvements in human conditions by expanding the range of people’s choice, a notion that the concept of human development 3 tries to capture. From this standpoint, the trade and development performance of a country cannot be seen as the mere sum of its economic growth and export performance. Instead, it is a composite notion, reflecting how trade relates to the range of choices available...
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...Chapter 1 An Overview of International Business International business – business transactions between parties from more than one country. The global economy – an economy in which national borders are irrelevant The global manager – The early era of international business – Basic Forms of Global Business Activities Exporting and Importing Exporting – the selling of products made in one’s own country for use or resale in other countries. Importing – the buying of products made in other countries for use or resale in one’s own country. Merchandise exports and imports (visible trade) – such as clothing, computers, and raw materials. Service exports and imports (invisible trade) – such as banking, travel, and accounting activities. International Investments Foreign direct investments (FDI) – investments made for the purpose of actively controlling property, assets, or companies located in host countries. Foreign portfolio investments (FPI) – purchases of foreign financial assets (stocks, bonds, and certificates of deposit) for a purpose other than control. Home country – the country in which the parent company’s headquarters is located. Host country – any other country in which the company operates. Other Forms of International Business Activity International licensing – a contractual arrangement in which a firm in one country licenses the use of its intellectual property (patents, trademarks, brand names, copyrights, or trade secrets) to a firm in a...
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...Lecture 10: International banking The sessions so far have focused on banking in a domestic context. In this lecture we are going to look at the issues which arise from the internationalisation of banking, which has been a growing trend since the 1960s. After looking at the nature of international banking and reasons for its growth, we shall focus on risks. The most important risks are the problem of sovereign risk and the behaviour of the international interbank market (IIBM), although exchange rate risk can also pose difficulties. Definition of international banking Banking transactions crossing national boundaries International lending: • all claims of domestic banks offices on foreign residents • claims of foreign bank offices on local residents • claims of domestic bank offices on domestic residents in foreign currency Deposits similarly classified (by residence of bank or depositor, or currency) Eurocurrency deposits – placed with banks outside the country whose currency the deposits are denominated in (not necessarily in euros!) Features of international banking Key aspects: currency risk and complexity of credit risk besides typical banking risks Competition for market share among banks (typically spreads very narrow) Cyclical nature, with periodic crises Competition for bank loans from the international bond market (close substitutes for loans) Importance of international interbank market (IIBM) as source of liquidity and funding for banks, and risks arising Role...
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...lobbied congress for tariff protection on its agricultural products. Overtime more domestic producers joined with agricultural interests, seeking their own protection from foreign competitors. The resulting legislative proposal increased tariffs for more than 20,000 items across a broad range of industries. In 1929, the Smoot-Hawley Tariff Act established some of the highest levels of tariffs ever imposed by US. That day stock market crashed, falling 12%. Despite protest from 34 foreign countries, the act was signed in 1930. The result was a retaliatory trade war, characterized by tit-for-tat tariffs and protectionism between trading nations. World trade fell from $5.7 billion to $1.9 billion, industrial efficiency and the effects of comparative advantage were sharply reduced, unemployment increased dramatically and the world was pushed into decade-long economic depression. Ad Valorem, Specific and Compound Duties. Import duties are three types; 1) Ad Valorem, 2) Specific, or 3) a combination of two called compound. An Ad Valorem Duty is stated as a percentage of the invoice value of the product. Example: US tariff schedule states that flavoring extracts and fruit flavors not containing alcohol are subjected to a 6% Ad Valorem Duty. When a shipment of flavoring extracts invoiced at $10,000 arrives at USA, the importer is required to pay $600 to US customs as duty. A Specific Duty is a fixed sum of...
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...INTERNATIONAL BUSINESSs Name SIDRA IFTIKHAR SECTION: Ah REGISTERATION NO :078 Submitted to sir saqib fareed sheikh GLOBALIZATION Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. In particular, advances in transportation and telecommunications infrastructure, including the rise of the Internet, are major factors in globalization and precipitate further interdependence of economic and cultural activities. GATT General agreement on tariffs and trade, an international treaty (1948–94) to promote trade and economic development by reducing tariffs and other restrictions. it was superseded by the establishment of the world trade organization in 1995 History of GATT • Following World War II, the victor nations sought to create institutions that would eliminate the causes of war. • Their principles were to resolve or prevent war through the United Nations and to eliminate the economic causes of war by establishing three international economic institutions. GATT, 1947 Because the ITO was stillborn the provisional agreement for the ITO, the General Agreement on Tariffs and Trade (GATT) became the agreement...
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...Phase 1 Individual Project Global Managerial Economics Professor Art Vaughn Colorado Technical University Online 25 August 2014 The World Bank and the International Monetary Fund were brought into existence at a formal meeting in Bretton Woods, New Hampshire in 1944. The World Bank and the IMF is a group of companies that can assist countries with the means of advancement in the form of a loan, guidance and exploration into a better, more successful economy after World War II this was a big help with capital. Supply and Demand drives the cost of goods lower as countries make more products thus the regional businesses lose money, assuring a supply of cheaper products to overseas markets. Expanding internationally may also drive other companies out of business. Gross Domestic Product (GDP) means the monetary value of all finished goods and services created inside the country's confines in a given time period even though GDP is almost always determined once a year. This is the government spending, exports minus imports transpire inside a distinct area and investments, utilization both public and private. Net exports that can be either negative or positive will change the Gross Domestic Product, by showing an increase in GDP if net exports are positive and shows a decrease in the GDP net exports are negative. The higher the Gross Domestic Product the better. A business owner knows that the Gross Domestic Product is going the biggest part of the company's...
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...marketplace C. avoid trade barriers D. gain tax benefits 2. The primary objective of the multinational corporation is to A. maximize shareholder wealth B. maximize world production C. minimize debt D. minimize the cost of doing business globally 3. When a firm operates globally it offers advantages such as A. greater political power at home B. bless taxes on its profits C. greater negotiating power with foreign minority groups D. greater negotiating power with labor unions 4. The prime transmitter of global competitive forces is the A. public utility firm B. financial management experience of the U.S. markets C. the multinational corporation D. the Federal Reserve System of the U.S. 5. Which of the following is an example of reverse foreign investment? A. Honda builds a factory in Ohio B. Apple builds a plant in Ireland that exports to the United States C. British Telecom issues new stock in the United States D. American investors buy shares in Sony 6. Which of the following theories identifies specialization as the main reason for international business activity? A. Product life cycle theory of international trade B. theory of diversification C. doctrine of comparative advantage D. theory of globalization 7. According to the capital asset pricing model A. only the systematic component of risk affects the required return B. foreign investments whose returns are uncorrelated with the market's return should have a higher required return than comparable domestic...
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