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2009 FINAL REVIEW QUESTIONS

# 2009 FINAL REVIEW QUESTIONS - ECONOMICS OF GLOBAL BUSINESS...

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ECONOMICS OF GLOBAL BUSINESS C30.0011 Prof. Srivatsan FALL 2009 - FINAL REVIEW QUESTIONS

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ANSWER SHEET 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
21. 22. Useful Equations Note: e refers to the exchange rate of the foreign currency 1. annualized forward premium or discount (F) F = FD/FP = (f – e)/ e * 12/n * 100 where n = # of months in contract 2. covered interest differential (CD) CD = (1 + n abroad ) * f/e – (1 +n home ) 3. covered interest differential approximization CD = F + ( n abroad - n home ) 4. Covered interest parity f / e = [1 + n home ] / [1 + n abroad ] 5. Uncovered Interest differential EUD = (1 + n abroad ) * e ex /e – (1 + n home ) 6. LOOP E = (\$/foreign currency) = (P US of good X )/(P for. Curr.of good X ) 7. Relative purchasing power parity e t /e 0 = (P t /P 0 )/(P t * /P 0 * ) (where * = foreign country) 8. Real Exchange rate a. RER of the foreign currency = (P t f /P 0 f ) * (e t /e 0 ) * 100 (P t d /P 0 d ) b. RER of the domestic currency = (P t d /P 0 d ) * (e 1 t /e 1 0 ) * 100 (P t f /P 0 f ) 9.. PPP and quantity theory of money: e = P/P f = (M/M f ) * (k f /k) * (Y f /Y)

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1. The NAFTA is an example of a(n): a. Free trade area. b. Customs union. c. Common market. d. Economic union. ANSWER: 2. Trade diversion is likely to be smaller: 3. A shortage of pounds in a flexible exchange rate system results in 4. An increase in French residents’ willingness to lend money to U.S. borrowers will shift the demand curve for:
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