Practice for Chapter 01 International Financial Management (01). Suppose that Great Britain is a major export market for your firm, a U.S. based MNC. If the British pound depreciates against the U.S. dollar, A). Your firm can charge more in dollar terms while keeping pound prices stable. B). Your firm may be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound prices will rise. C). To protect U.K. market share, your firm may have to cut the dollar price of your goods to keep the pound price the same. D). b) and c) are both correct (02). Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example of A). Information asymmetry B). Political risks C). Foreign exchange risks D). A market imperfection (03) Free trade is supported by A). Theory of mercantilist B). Theory of comparative advantage C). Theory of trilemma D). Theory of optimum currency areas (04). The common monetary policy for the euro zone is now formulated by A). The International Monetary Fund Organization B). The Bank of International Settlement C). The World Bank D). Eurosystems (05). Liberalization of international trade will A). enhances the welfare of the world's citizens B). creates unemployment and displacement of workers permanently C). results in higher prices in the long run as monopolist are able to charge higher prices after eliminating their competitors D). all of the above are wrong (06). Regarding to privatization, which of the following statement is not correct A) Has spurred a tremendous increase in cross-border investment. B). Has increased the international investment C. Has guaranteed that new ownership will be limited to the local citizens. D) Has increased the efficiency of enterprises. (07). Advantages of a dominant currency should not include: A) Deficits without tears B)/Bearing the exchange change risks C). Being an invoice currency D). Being a reserve currency Essay: What theory supports free trade during recent 50 years? Please explain why it happens? (15%)
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A market imperfection. This is because the barrier to protect the U.K. market and price the same is considered a market imperfection. Show more…
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Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: P = 10 - Q Marginal Revenue: MR = 10 - 2Q Total Cost: TC = 3 + Q + 0.5Q^2 Marginal Cost: MC = 1 + Q where Q is quantity and P is the price measured in Wiknamian dollars. a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? b. One day, the King of Wiknam decrees that henceforth there will be free trade - either imports or exports of soccer balls at the world price of $6. The firm is now a price taker in a competitive market. What happens to the domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls? c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain. d. Suppose that the world price was not $6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would allowing trade have changed anything in the Wiknamian economy? Explain. How does the result here compare with the analysis in Chapter 9?
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Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: $P = 10 - Q$ Marginal Revenue: $MR = 10 - 2Q$ Total Cost: $TC = 3 + Q + 0.5 Q^2$ Marginal Cost: $MC = 1 + Q$, where $Q$ is quantity and P is the price measured in Wiknamian dollars. a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? b. One day, the King of Wiknam decrees that henceforth there will be free trade-either imports or exports-of soccer balls at the world price of \$6. The firm is now a price taker in a competitive market. What happens to domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls? c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain. d. Suppose that the world price was not \$6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would allowing trade have changed anything in the Wiknamian economy? Explain. How does the result here compare with the analysis in Chapter 9?
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