Running head: INTERNATIONAL TRADE AND FINANCE

International Trade and Finance

Name Institution

INTERNATIONAL TRADE AND FINANCE International Trade and Finance Question 1. A Part This is a fair criticism. This is because these laborers ho or! in the s eat sho"s

o#erseas are unfairl$ e%"loited b$ being forced to or! under "oor or!ing conditions& hile at the same time being "aid "oorl$ for their efforts. In addition to this& the a#ailabilit$ of chea" labor o#erseas hurts the or!ers in the '( ho are denied )obs because it is chea"er to "roduce commodities o#erseas than in the '(. Question 1. B Part This is an unfair criticism. This is because the go#ernment su""ort of the farmers is im"ortant in ensuring that the agricultural sector in the '( remains afloat. The cotton farmers& for instance& need su""ort on the "art of the go#ernment in the form of grants& because the$ need better seeds to ensure that the '( is a ma)or cotton "roducer in the orld. This does not distort the mar!et because at the end of the da$ it benefits both the farmers and the go#ernments. Question 1. C Part This is an unfair criticism. Asset bubbles and mar!et crashes are not brought about b$ ban!s or stoc! e%changes the$ are brought about b$ bad fiscal "olicies& and& therefore& instead of loo!ing at the ban!s as the cause of economic do nturns& the em"hasis should be "ut on the "olic$ ma!ers. *an!s and stoc! e%changes in a de#elo"ing econom$ can offer citi+ens means of increasing their "ersonal sa#ings& as ell as enhancing their ca"ital accumulation. In addition& ban!s offer funds that "eo"le can borro for both long,term and short,term in#estment. Question 2. A Part Increasing the mone$ su""l$ in the econom$ is the sim"lest a$ the go#ernment can use to ea!en its currenc$. If the mone$ in circulation in the countr$ is increased& then the #alue of

INTERNATIONAL TRADE AND FINANCE the mone$ goes do n. Therefore& this ea!ens the currenc$& and& conse-uentl$& de#alues the currenc$. Question 2. B Part .$ inflationar$ e%"ectations for the $en are "ositi#e. /The monetar$ "olic$ that 0a"an

ado"ted in 1231 has e%"anded the asset "urchase "rogram to 45 trillion $ens& and inaddition& the *an! of 0a"an has !e"t the funding of lending at 16 trillion7 8.andel 9 *arnes& 123:;. As a result& the inflation rates ill most li!el$ rise in 123: and in future $ears. Question 2. C Part .$ short,term e%"ectations of the trade balance in 0a"an are that there ill be a continued deficit in the balance of trade. <o e#er& this deficit is li!el$ to become narro er as the $ears "rogress. This is because the ea!ening $en has led to the increase in the e%"orts hile& at the same time& 0a"an has increased its im"orts of energ$ and communication de#ices. The increase in both im"orts and e%"orts ill lead to the reduction of the trade deficit in the long run. Question 2. D Part There is an e%"ectation of more tourism income from 0a"an in the ne%t fi#e $ears. This is because of their ea! currenc$. The ea!ening of the $en has made 0a"an an affordable destination for most foreign tourists. /The currenc$ has been forecasted to sta$ this a$ for a hile due to the monetar$ "olicies and the lending habits of the *an! of 0a"an&7 and hence for the ne%t fi#e $ears tourists ill consider 0a"an as an affordable destination 8=arnoc!& 123:;. Question 2. E Part To$ota "rofits ill increase as a result of go#ernment actions. /These actions included the mo#e b$ the go#ernment to ea!en the $en7 8Naughton 9 Trudell& 123:;. This mo#e has

INTERNATIONAL TRADE AND FINANCE increased the o"erating "rofits of To$ota& as ell as the income from o#erseas sales. A ea!er $en im"lies that the "rofits on e%"orts ill be incremented due to the increased sales #olumes. Question 3 Currie 83>?3; describes mone$ as an$thing that has been /generall$ acce"ted as a medium of e%change.7 The t$"e of mone$ used in a certain econom$ de"ends on the le#el of de#elo"ment of that econom$. 0osh (an!e$@s use of bacon as mone$ introduces an as"ect of the

barter econom$& hich in#ol#es the e%change of goods and ser#ices using goods or ser#ices that the other "art$ ould consider as useful. *acon cannot be regarded as a unit of account. For it to be considered one there has to be a standard a$ of -uoting the #alue of the goods $ou are about to "urchase in terms of mone$. For instance& one can sa$ A1.>>Bgallon of mil!& rather than 2.6 "ounds of *aconBgallon of mil!. The Cold standard can be used as a unit of account because it fi%es the #alue of a currenc$ in terms of gold. The Da" stones are large& and& therefore& it is hard to -uantif$ them& es"eciall$ in the case of small transactions. *acon does not -ualif$ as mone$ because it cannot be used as a store of #alue. For it to be considered as a store of #alue& it must ha#e some future orth. If it holds future #alue& then it can be held b$ a "erson ith the aim of using it in future "urchases. *acon has an e%"ir$ date and& therefore& if it is not consumed ithin a "articular time "eriod& it ill ha#e no #alue at all to the consumer. The dollar has future #alue and "eo"le are able to !ee" mone$ a a$ in ban!s for the "ur"ose of future transactions. The gold standard& hich uses gold to #alue currencies contains future #alue and can therefore be used as a store of #alue. The stone #alue of the Da" can be used as a store of #alue because older stones are considered to ha#e more #alue than the ne er stones.

INTERNATIONAL TRADE AND FINANCE *acon -ualifies as mone$ on the account that it can be used as a medium of e%change.

*acon -ualifies as a medium of e%change in that it can be traded for other goods or ser#ices. The main "roblem ith this is that it can onl$ be acce"ted b$ s"ecific "eo"le because one cannot use bacon in all areas due to religious or cultural beliefs. Dollars and gold standards are also used as the media of e%change because the$ are uni#ersall$ acce"table. The stone mone$ of Da"& on the other hand& is useful as a medium of e%change& but the do nside to the use of the stones is that the$ can onl$ be em"lo$ed in large transactions and are not uni#ersall$ acce"ted. The interest rate of bacon ould be lo . This is because bacon does not ha#e a substantial store of #alue& and hence& if one lends "erson bacon& the$ ould not e%"ect to get more bacon& the$ ould get bacon hose #alue has decreased due to the fact that it ill e%"ire. Question 4. A Part Free trade is good. It allo s for the free mo#ement of goods bet een countries ithout the im"osition of bans or restrictions. It also allo s for the mo#ement of goods to countries here those goods do not e%ist. For instance& food can be trans"orted to the countries that do not ha#e food. In addition& free trade ill hel" in reducing the "o#ert$ le#elE this is because food ill be a#ailable to the "oor "eo"le at lo "rices due to the lac! of trade restrictions. Question 4. B Part Trade restrictions in one countr$ ill lead to a decrease in su""l$ of the food to other countries. Due to the su""l$ reduction& "rices ill increase and this has a direct im"act on the elfare of the consumers. The main consumers ho ill feel the im"act are the "oorest consumers ho ould benefit from lo food "rices. The trade restrictions ill also scare im"orting and e%"orting countries a a$ from the orld trade mar!ets. This ill lead to a reduction in the amount of food that is a#ailable in the orld mar!ets.

INTERNATIONAL TRADE AND FINANCE Question 4. C Part

The "ur"ose of free mar!ets in ca"ital labor as ell as technolog$ is self,regulation. This im"lies that the mar!ets ill regulate themsel#es ithout interference from the #arious go#ernments. /The outcome of this free mar!et "aradigm is free trade bet een all countries& as ell as a free mo#ement of resources bet een different nations7 8Ant eiller& Co"eland 9 Ta$lor& 3>>?;. This allo s for mo#ement of resources to "laces here these resources are re-uired& hich in turn leads to a balance bet een the demand and the su""l$. The challenge of free trade is that there is a li!elihood of anarch$. /Free mar!ets gi#e a free hand for mono"olies to e%ist& and this ma$ ha#e a negati#e effect on different countries as the$ ill be rel$ing on one ma)or "roducer of certain commodities7 8Ant eiller& Co"eland 9 Ta$lor& 3>>?;. In addition& social ills li!e "ollution& and o#ere%"loitation of natural resources could occur as a result of free trade. Free trade is desirable& but in the current orld e need regulations to be formulated to safeguard ci#ilians& and the en#ironment from being e%"loited.

INTERNATIONAL TRADE AND FINANCE References Ant eiller& =.& Co"eland& *.& 9Ta$lor& (. 83>>?;. Is free trade good for the environment? 8=or!ing Fa"er No. 5424;. Currie& D. 83>?3;. Macro economic analysis. India: Nirali Fra!ashan. .andel& *.R.& 9 *arnes& C. 8123:;. 0a"anese inflation e%"ectations& re#isited. Liberty Street Economics. Retrie#ed from: htt":BBlibert$streeteconomics.ne $or!fed.orgB123:B2GB)a"anese,inflation,e%"ectations, re#isited.html. Naughton& H.& 9 Trudell& C. 8123:;. From 0a"an@s ea! Den& To$ota gains strong ad#antage. Bloomberg Business week. Retrie#ed from: htt":BB

.business ee!.comBarticlesB123:,

2:,13Bfrom,)a"ans, ea!,$en,to$ota,gains,strong,ad#antage. =arnoc!& E. 8123:;. 0a"an logs large trade deficit. The =all (treet 0ournal. Retrie#ed from: htt":BBonline. s).comBarticleB(*32223G1G314??4:1::>:?2G64?666353>>6>63?11.html