# Homework 1 answers(3).pdf - International Finance Homework...

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International Finance Homework 1 1) Latvia and Estonia are two countries. Assume that currently there is no trade between them. Each country has 100 units of labor. Latvia produces fish, at a cost of 1 unit of labor per fish, and grain, at a cost of 2 units of labor per bushel. Estonia produces fish at a cost of 2 units of labor per fish, and grain at a cost of 3 units of labor per bushel. Both countries consume both fish and grain. a. True or False, the countries can both benefit if they can trade with each other? True. b. Circle any and all of the following which hold: (bold == circled) i. Latvia will export fish if there is trade ii. Latvia will export grain if there is trade iii. Estonia will export fish if there is trade iv. Estonia will export grain if there is trade v. We do not have sufficient information to say what will be exported 2) Circle if any of the following hold true with respect to the MacDougall model a. Investors invest more to countries with higher rates of return b.

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