Exam 1 solutions - Short Answers(3 Points each 1 When...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Short Answers (3 Points each) 1. When trying to determine whether a firm should export a good in its home country or use FDI in a new market, there were four important location factors cited in the book. Name 3 of them (be creative if you don’t know and guess ). From page 351. Tough one. We were lenient. Comparative Advantage. Scale economies Government barriers to importing into the foreign country Trade blocs (get access to countries in the wider bloc) 2. From The Commanding Heights clip, what is the main factor/condition that the economist Hernando De Soto argues developing countries lack that is undermining their growth potential? Property Rights 3. If two states create a fixed exchange rate system, what effect will it have on inflation rates in those states and why? We were very generous here and got some variance in answers as this is so open ended. It will force the high inflation state to reduce/decrease its inflation rate via the price discipline effect. We basically gave full credit to any answer that mentioned: the price discipline effect, pressure to hold down inflation, or a state with higher inflation loosing its competitiveness
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4. What is the conflict of interest that the ratings agencies face according to the reading on them? Some variance in answers, but generally the best, simple answer was: They are paid by the people who issues the securities they rate. For other answers, we checked the reading. 5. How did the dollar crisis end (e.g. late 1960s/early 1970s episode)? Several different answers will get full credit. Any answer that has ANY of the following is fine: US left the gold standard or suspended convertibility US introduced a two tier system for gold convertibility Fixed exchange rate system ended and currency started to float freely Assessing Changes in Currency Values (4 Points) If the Hungarian Florint increases in value, what is the effect on the following: Cost of exports from Hungary____ INCREASE ________________(increase/decrease/no change) Cost of future German FDI into Hungary ____ INCREASE __________________(increase/decrease/no change) Quantity of imports into Hungary _____ INCREASE __________________(increase/decrease/no change) Value of Hungarian investments in Italy____ DECREASE __________(increase/decrease/no change) Forward Premium/Discount (2 Points) Let us look at the Lizard to Spock Exchange rate now. What is the Annualized Forward Premium or Discount if the today’s spot rate is 0.348 Lizards/Spock and the 60 day forward rate is 0.315 Lizards/Spock? -0.568 OR -56.8% OR DISCOUNT OF 56.8% -1 IF THEY FORGET TO USE NEGATIVE SIGN OR MENTION DISCOUNT
Image of page 2
Multiple Choice Section (3 points each) (Choose the best answer present)
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern