Reasons U.S Ports are Considered Uncompetitive
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-Failing infrastructure
-Ports too small to accommodate large ships
What is a Compound Tariff?
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A Tariff is a mix of ad valorem tariffs and specific tariffs
-Ex: the U.S decided to protect cherries with a fixed tariff of $.07 per kg.,
plus 4.5% of the wholesale price per kg
,Location Economies
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An optimal place for value chain activity to be created (optimal = cost is
low or return on investment is high)
Characteristics of FDI
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10% ownership, >1 year, Intent to control
Under the Bretton Woods system, what became the mostly widely held central
reserve asset? Provide one explanation as to how or why this occurred?
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○ The US Dollar. Harry Dexter while inserted the term dollar behind the
scenes to replace the draft verbiage of gold-convertible hard currency.
○The U.S had a lot of the world's gold and so was a likely candidate anyway
for a gold-backed fixed exchange rate system.
Bridgestone, the world's largest tire company, is located in Japan. You are in the U.S
and you recently imported a shipment of specially off-the-road tires from
Bridgestone Japan at a cost of 250,000 Yen. Suppose you enter into a 3-month
forward contract to complete the 250,000 yen transaction with Bridgestone Japan.
How much would you need to start saving in the bank today to make the full payment
,in 3 months time?
-3 Month Forward Rate: 1 USD = 99.0750 YEN
-Annual Interest Rates:
○ USD 2.40%
○ YEN 6.0%
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Step 1: How much USD needed after 3 months
■ 1 USD = 99.0750 YEN
■ 1/99.0750 USD = 1 YEN
■ (1/99.0750) * 250,000 USD = 250,000 YEN
■ 2523.34 USD = 250,000 YEN
Step 2: Find PV for the amount found above
■ FV = PV (1+r*n)
■ 2.523.34 = PV (1+0.024/4)
■ 2.523.34/(1+0.04/4) = PV
■ PV = 2508.29 USD
If the UK currently in the EU's common market, which step of regional economic
integration would the UK be in if it chooses to lessen its integration by one level (for
instance through the impending Brexit process)?
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Customs Union (comes after FTA and before common market)
What, if anything guarantees the currency pair will actually be trading at the spot rate
in 3 months and 6 months time at the same value as calculated for the forward rate?
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, Nothing guarantees it; the future currency rate could happen to coincide
with the calculations though that is unlikely since so many things affect
currency value and we don't know what will happen in the future. The
forward rate can be used to hedge transaction risks, but as we have
reiterated, it is impossible to predict a future exchange rate/spot rate.
Reasons why the U.S. might be in a unique position in financing its current account
deficit today?
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-There is a strong global demand for USD
-Other societies seem dependent on the U.S consumption to fuel exports
-U.S. financial assets are seen as a safe haven even amidst the U.S. trade
deficits; the demand keeps U.S. interest rates low and sustains the deficit
It is possible for a foreign government to legally violate your property rights in that
respective nation
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Yes. Example: eminent domain
When or how often is each exchange rate revised?
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Give this one a try later!
-Failing infrastructure
-Ports too small to accommodate large ships
What is a Compound Tariff?
Give this one a try later!
A Tariff is a mix of ad valorem tariffs and specific tariffs
-Ex: the U.S decided to protect cherries with a fixed tariff of $.07 per kg.,
plus 4.5% of the wholesale price per kg
,Location Economies
Give this one a try later!
An optimal place for value chain activity to be created (optimal = cost is
low or return on investment is high)
Characteristics of FDI
Give this one a try later!
10% ownership, >1 year, Intent to control
Under the Bretton Woods system, what became the mostly widely held central
reserve asset? Provide one explanation as to how or why this occurred?
Give this one a try later!
○ The US Dollar. Harry Dexter while inserted the term dollar behind the
scenes to replace the draft verbiage of gold-convertible hard currency.
○The U.S had a lot of the world's gold and so was a likely candidate anyway
for a gold-backed fixed exchange rate system.
Bridgestone, the world's largest tire company, is located in Japan. You are in the U.S
and you recently imported a shipment of specially off-the-road tires from
Bridgestone Japan at a cost of 250,000 Yen. Suppose you enter into a 3-month
forward contract to complete the 250,000 yen transaction with Bridgestone Japan.
How much would you need to start saving in the bank today to make the full payment
,in 3 months time?
-3 Month Forward Rate: 1 USD = 99.0750 YEN
-Annual Interest Rates:
○ USD 2.40%
○ YEN 6.0%
Give this one a try later!
Step 1: How much USD needed after 3 months
■ 1 USD = 99.0750 YEN
■ 1/99.0750 USD = 1 YEN
■ (1/99.0750) * 250,000 USD = 250,000 YEN
■ 2523.34 USD = 250,000 YEN
Step 2: Find PV for the amount found above
■ FV = PV (1+r*n)
■ 2.523.34 = PV (1+0.024/4)
■ 2.523.34/(1+0.04/4) = PV
■ PV = 2508.29 USD
If the UK currently in the EU's common market, which step of regional economic
integration would the UK be in if it chooses to lessen its integration by one level (for
instance through the impending Brexit process)?
Give this one a try later!
Customs Union (comes after FTA and before common market)
What, if anything guarantees the currency pair will actually be trading at the spot rate
in 3 months and 6 months time at the same value as calculated for the forward rate?
Give this one a try later!
, Nothing guarantees it; the future currency rate could happen to coincide
with the calculations though that is unlikely since so many things affect
currency value and we don't know what will happen in the future. The
forward rate can be used to hedge transaction risks, but as we have
reiterated, it is impossible to predict a future exchange rate/spot rate.
Reasons why the U.S. might be in a unique position in financing its current account
deficit today?
Give this one a try later!
-There is a strong global demand for USD
-Other societies seem dependent on the U.S consumption to fuel exports
-U.S. financial assets are seen as a safe haven even amidst the U.S. trade
deficits; the demand keeps U.S. interest rates low and sustains the deficit
It is possible for a foreign government to legally violate your property rights in that
respective nation
Give this one a try later!
Yes. Example: eminent domain
When or how often is each exchange rate revised?
Give this one a try later!
