1. Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. Also, today’s spot exchange price of the pound is $2.00 while the 6month forward exchange price of the pound is $1.98. If the price of the 6-month forward pound were to _____, U.S. investors would be indifferent between covered U.K. investment and domestic U.S. investment under exact CD.

a. rise to $1.990

b. rise to $2.012

c. fall to $1.960

d. fall to $1.944

e. None of the above.

2. Suppose in Zurich £/$ = 0.5, while in New York SF/$ = 2.5, but in London £/SF = 0.1. If you begin by holding £1 million, your profit from these exchange rates will be:

a. £1 million

b. £4.2 million

c. £2.5 million

d. £1.5 million

Computation of deferred taxes under IFRS is slightly different from GAAP. For example, in the United Kingdom (which follows IFRS), companies use the crystallization approach. An equivalent concept in the United States is “realization.”

The concept underlying this “crystallization” approach is that companies recognize deferred income taxes only if the taxes are expected to crystallize. Therefore, if a liability is deferred indefinitely, then the present value of that liability is zero. No deferred tax liability is recognized if the accumulated deferred tax amount is expected to increase each year, thereby delaying indefinitely the ultimate liquidation of this obligation.

1. Compare and contrast the theory behind the “crystallization” approach with the inter-period allocation approach used in the U.S.
2. How might this same concept be applied to the recognition of liability for accounts payable? That is, if accounts payable are expected to increase each year, should the crystallization concept apply to this liability? Why or why not?
3. How reasonable does this approach seem? Explain.

Two of the main goals of International Consumer Law is to set a global minimum consumer protection standard and to remove obstacles to cross-border trade. The United Nations Guidelines on Consumer Protection (UNGCP) were promulgated to provide guidance as to the minimal standards of protection within the global market. The United Nations Conference for Trade and Development (UNCTAD) promotes those guidelines to member states. In addition to U.N. activity, the International Consumer Protection and Enforcement Network (ICPEN) was established in 1992 to promote international protection for consumers by creating a collaborative forum to address cross-border misconduct.

The UN Guidelines are designed with the intention of providing a inspirational model. Describe the fundamental principles upon which it is based. In addition, identify the long-term goals of the ICPEN in its effort to motivate cross-border traders to engage in acceptable conduct. Describe a couple of the mechanisms that the ICPEN use to encourage compliance.

Voluntary export restraints provide for rich interplay between economics and politics. Let's look at two examples. In the first, the United States forced one key exporter, Japan, to limit its exports of automobiles. In the second, a small VER, again between the United States and Japan, grew to become a wide-ranging set of export limits that covered many textile and clothing products, involved many countries, and lasted for decades.

TEXTILES AND CLOTHING: A MONSTER

In 1955, a monster was born. In the face of rising imports from Japan, the U.S. government convinced the Japanese government to “voluntarily” limit Japan's exports of cotton fabric and clothing to the United States. In the late 1950s, Britain followed by compelling India and Pakistan to impose VERs on their clothing and textile exports to Britain. The VERs were initially justified as “temporary” restraints in response to protectionist pleas from import-competing firms that they needed time to adjust to rising foreign competition. But the monster kept growing.

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The 1961 Short-Term Arrangement led to the 1962 Long-Term Arrangement. In 1974, the Multifibre Arrangement extended the scheme to include most types of textiles and clothing. The trade policy monster became huge. A large and rising number of VERs, negotiated country by country and product by product, limited exports by developing countries to industrialized countries (and to a number of other developing countries).

The monster even had its own growth dynamic. A VER is, in effect, a cartel among the exporting firms. As they raise their prices, the profit opportunity attracts other, initially unconstrained suppliers. Production of textiles and clothing for export spread to countries such as Bangladesh, Cambodia, Fiji, and Turkmenistan. As these countries became successful exporters, the importing countries pressured them to enact VERs to limit their disruption to the managed trade.

The developing countries that were constrained by these VERs pushed hard during the Uruguay Round of trade negotiations to bring this trade back within the normal WTO rules (no quantitative limits, and any tariffs to apply equally to all countries—most favored nation treatment, rather than bilateral restrictions). The Agreement on Textiles and Clothing came into force in 1995 and provided for a 10-year period during which all quotas in this sector would be ended. On January 1, 2005, after almost a half century of life, the monster mostly died.

We say “mostly” because for a few more years a small piece of the monster lived on. As part of its accession agreement to the World Trade Organization, China accepted that other countries could impose China-specific “safeguards” if its rising exports of textiles or clothing harmed import-competing producers. As the United States phased out VERs, the U.S. government imposed such safeguards on some imports from China. By late 2005 a comprehensive agreement limited imports of 22 types of products from China. Similarly, the European Union imposed safeguard limits on imports from China on 10 types of products. Then, the monster finally took its last breaths. The EU limits expired at the end of 2007 and the U.S. limits expired at the end of 2008. (Still, we do not have free trade in textiles and clothing because many countries continue to have relatively high import tariffs in this sector. But the web of VERs has ended.)

Consumers are the big winners from the liberalization. Prices generally fell by 10 to 40 percent when the VERs ended. Another set of winners is countries, including China, India, and Bangladesh, that have strong comparative advantage in textiles and clothing but whose production and exports had been severely constrained by the VERs. On the other side, with rising imports, textile and clothing firms and workers in the United States and other industrialized countries have been harmed. Another set of losers is those developing countries, apparently including Korea and Taiwan, that do not have comparative advantage in textile and clothing production but that had become producers and exporters of textiles and clothing because the VERs had severely restricted the truly competitive countries. (This shows another type of global production inefficiency that resulted from the VERs.) These uncompetitive countries lost the VER rents that they had been receiving, and their industries shrank as those in countries such as China expanded.

Create a convincing case to justify DC's such as the United States and Britain imposing VERS on imported textiles and apparel. On the other hand beyond merely repeating the points already made in the text, make the case as an international economist, that VERS in textiles and apparel have been bad for global welfare.

Each student (using his / her own language) explains and interprets these two pages on Customs taxes on US oil imports.

You are required to explain the idea from the presented paper to someone who does not know anything about economics, that is, you have to simplify the idea while explaining it

Supply and Demand Analysis: An
Oil Import Fee
The basic logic of supply and demand is a powerful tool of analysis. As an extended example of
the power of this logic, we will consider a recent proposal to impose a tax on imported oil. The
idea of taxing imported oil is hotly debated, and the tools we have learned thus far will show us
the effects of such a tax. .
Consider the facts. Between 1985 and 1989, the United States increased its dependence on oil
imports dramatically. In 1989, total U.S. demand for crude oil was 13.6 million barrels per day. Of
that amount, only 7.7 million barrels per day (57 percent) were supplied by U.S. producers, with
the remaining 5.9 million barrels per day (43 percent) imported. The price of oil on world mar-
kets that year averaged about $18. This heavy dependence on foreign oil left the United States vul-
nerable to the price shock that followed the Iraqi invasion of Kuwait in August 1990. In the
months following the invasion, the price of crude oil on world markets shot up to $40 per barrel.
Even before the invasion, many economists and some politicians had recommended a stiff
oil import foc (or tax) that would, it was argued, reduce the U.S. dependence on foreign oil by
(1) reducing overall consumption and (2) providing an incentive for increased domestic produc-
tion. An added bonus would be improved air quality from the reduction in driving.
Supply and demand analysis makes the arguments of the import fee proponents easier to
understand. Figure 4.5(a) shows the U.S. market for oil. The world price of oil is assumed to be
$18, and the United States is assumed to be able to buy all the oil that it wants at this price.This means that domestic producers cannot get away with charging any more than $18 per barrel. The
curve labeled Supplyus shows the amount that domestic suppliers will produce at each price level.
At a price of $18, domestic production is 7.7 million barrels. Stated somewhat differently, U.S.
producers will produce at point A on the supply curve. The total quantity of oil demanded in the
United States in 1989 was 13.6 million barrels per day. At a price of $18, the quantity demanded
in the United States is point B on the demand curve.
The difference between the total quantity demanded (13.6 million barrels per day) and
domestic production (7.7 million barrels per day) is total imports (5.9 million barrels per day).
Now suppose that the government levies a tax of 33 1/3 percent on imported oil. Because the
import price is $18, a tax of $6 (or .3333 X $18) per barrel means that importers of oil in the
United States will pay a total of $24 per barrel ($18+ $6). This new, higher price means that U.S.
producers can also charge up to $24 for a barrel of crude. Note, however, that the tax is paid only
on imported oil. Thus, the entire $24 paid for domestic crude goes to domestic producers.
Figure 4.5(b) shows the result of the tax. First, because of a higher price, the quantity
demanded drops to 12.2 million barrels per day. This is a movement along the demand curve
from point B to point D. At the same time, the quantity supplied by domestic producers increased
to 9.0 million barrels per day. This is a movement along the supply curve from point A to point C.
With an increase in domestic quantity supplied and a decrease in domestic quantity demanded,
imports decrease to 3.2 million barrels per day (12.2 - 9.0).'
The tax also generates revenues for the federal government. The total tax revenue collected is
equal to the tax per barrel ($6) times the number of imported barrels. When the quantity
imported is 3.2 million barrels per day, total revenue is $6 X 3.2 million, or $19.2 million per day
(about $7 billion per year).
What does all of this mean? In the final analysis, an oil import fee would (1) increase domes-
tic production and (2) reduce overall consumption. To the extent that one believes that
Americans are consuming too much oil and polluting the environment, the reduced consump-
tion may be a good thing.

SCENARIO:

Eva Melon, the CEO and majority shareholder of OuterSpace Corp. (OSC) (incorporated in Delaware) founded the company to develop the technology needed to make commercial space flights available to the average citizen. She believed that space could be made available for colonization and that the energy and resources needed to sustain life in outer space could be harvested from other planets, such as Mars. Eva spent most of her substantial fortune investing in renewable energy and philanthropic endeavors aimed at making life more comfortable through technological breakthroughs. Because Eva’s mother was from the United States and Eva’s father was from France, she held citizenship in both countries. She frequently traveled back and forth operating OSC from her homes in both countries.

Eva’s most recent project for OSC involved the design and construction of a space vehicle. While Eva had initially planned on manufacturing the vehicle in the United States, she projected that she could save approximately $10 million dollars by manufacturing the vehicle in China. However, she wanted to launch the vehicle from a spaceport either in Russia or the United States. Several test flights were slated on the project’s schedule for the years 2020 and 2021 which included a standard flight into low earth orbit, a docking with the international space station, and finally, a trip to Mars for natural resource sample collection. If successful in all the test flights, OSC planned on launching short commercial trips to space for individuals in 2023 and “colonization” flights to Mars some time thereafter.

To help secure funding for the research and development of the project, OSC also developed and produced solar panels for sale to the public, which were very similar to the ones that they would be using on their space vehicles for energy while in space. The panels were highly successful not only because of their technological brilliance, but also thanks to the public’s fascination with Eva, who was portrayed in the media as the “architect of the future.” OSC’s solar panels dominated the solar panel market, effectively shutting down other solar panel companies both domestically and abroad. Upset by the shift in the market, a competing foreign company, SolarX, filed a suit against OSC in federal court for violations of Section 1 of the Sherman Act.

Undeterred, OSC entered into agreement with a Chinese company to begin the manufacture of the space vehicle. However, upon learning of the agreement, the United States government immediately notified OSC that they were in violation of the U.S. Department of State’s International Traffic in Arms Regulation laws and that OSC must cease all transfer of technology and data related to the manufacturing of the vehicle. Concurrently, the Chinese government, in learning of the agreement and realizing the benefit of the technology to its national government, seized control of the manufacturing facility. OSC immediately filed suit in the United States against the manufacturing facility and Chinese government. It also brought an injunction against the U.S. government to prevent the enforcement of any federal regulation prohibiting OSC from using the Chinese company to manufacture space vehicles.

Knowing how long the lawsuits would take and wanting to stay on schedule, OSC opened a manufacturing facility in France to continue the construction of the space vehicle through a wholly-owned subsidiary of OSC (rather than an outside company).

The publicity surrounding OSC’s struggle to get its vehicle built and operational was overwhelmingly in support of OSC. As a result, OSC hinted at solidifying its decision to launch the vehicle from the United States, at a spaceport which it would build in Texas, for use in all its testing operations.

ETHICS QUESTION:

1. In 5-10 sentences, answer the following question. Assume OSC grants an exclusive interview to a 24-hour news channel about the economic status of the company hours after the seizure of the manufacturing facility in China. Chen Li is the marketing director for OSC and is assigned to the interview. Li does not know if the news station yet knows about the seizure, but knows he will be asked about the financial state of the company. He confirms that the confiscation has actually cost the company millions, which will impact the company's finances significantly but has been told by Eva "not to spook investors because we will recover." When asked by the interviewer, "Where is the company financially today, and what can we expect in terms of company growth over the next year?" Li responds, "OSC's management is as strong as ever and we expect revenues to climb in the future." Li never mentions the losses incurred by the seizure. Is this an ethical answer and should Li have disclosed the company's losses? Is corporate marketing "spin" an ethical business practice?

1. Investment Timing Option: Decision-Tree Analysis

Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $23 million. Kim expects the hotel will produce positive cash flows of $3.68 million a year at the end of each of the next 20 years. The project's cost of capital is 13%.

a) What is the project's net present value? Negative value, if any, should be indicated by a minus sign. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.
$     million

b) Kim expects the cash flows to be $3.68 million a year, but it recognizes that the cash flows could actually be much higher or lower, depending on whether the Korean government imposes a large hotel tax. One year from now, Kim will know whether the tax will be imposed. There is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $2.3 million. At the same time, there is a 50% chance that the tax will not be imposed, in which case the yearly cash flows will be $5.06 million. Kim is deciding whether to proceed with the hotel today or to wait a year to find out whether the tax will be imposed. If Kim waits a year, the initial investment will remain at $23 million. Assume that all cash flows are discounted at 13%. Use decision-tree analysis to determine whether Kim should proceed with the project today or wait a year before deciding.
-Select-It makes sense to proceed with the project today OR It makes sense to wait a year before deciding.

2. Investment Timing Option: Option Analysis

Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $20 million. Kim expects the hotel will produce positive cash flows of $3 million a year at the end of each of the next 20 years. The project's cost of capital is 13%.

Kim expects the cash flows to be $3 million a year, but it recognizes that the cash flows could actually be much higher or lower, depending on whether the Korean government imposes a large hotel tax. One year from now, Kim will know whether the tax will be imposed. There is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $2.2 million. At the same time, there is a 50% chance that the tax will not be imposed, in which case the yearly cash flows will be $3.8 million. Kim is deciding whether to proceed with the hotel today or to wait a year to find out whether the tax will be imposed. If Kim waits a year, the initial investment will remain at $20 million. Assume that all cash flows are discounted at 13%. Use the Black-Scholes model to estimate the value of the option. Assume that the variance of the project's rate of return is 0.0687 and that the risk-free rate is 5%. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to three decimal places.

Use computer software packages, such as Minitab or Excel, to solve this problem.

$   million

{I tried looking at other similar problems on here and replacing them with my numbers but i keep getting the wrong answer. Please help.}

Caterpillar, Inc., headquartered in Peoria, Illinois, is an American corporation with a worldwide dealer network which sells machinery, engines, financial products and insurance. Caterpillar is the world's leading manufacturer of construction and mining equipments, -diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Although providing financial services through its Financial Products segment, Caterpillar primarily operates through its three product segments of Construction Industries, Resource Industries, and Energy & Transportation. Founded in 1925, the company presently has sales and revenues of $55.2 billion, total assets of $78.5 billion, and 114,000 employees. Caterpillar machinery are commonly recognized by its trademark “Caterpillar Yellow” and it's “CAT” logo. Some of its manufactured construction products include: mini excavators, small-wheel loaders, backhoe loaders, multi-terrain loaders, and compact-wheel loaders. Other products include: machinery in mining and quarrying applications, reciprocating engines and turbines in power systems, the remanufacturing of CAT engines and components, and a wide range of financial alternatives to customers and dealers for Caterpillar machinery and engines.

Caterpillar tractors have undertaken and completed many difficult tasks since the company's beginning. In the late 1920s, the Soviet Grain Trust purchased 2,050 Caterpillar machines for use on its large farm cooperatives. This sale helped to keep Caterpillar's factories busy during the Great Depression. In the 1930s, Caterpillar track-type tractors helped construct the Hoover Dam, worked on the Mississippi Levee construction project, helped construct the Golden Gate Bridge, and were used in the construction of the Chesapeake & Delaware Canal. During this time period, CATs were also used in construction projects around the world in countries such as Palestine, Iraq, India, Canada, the Netherlands, Belgium and the building of the Pan American Highway. In World War II, Caterpillar built 51,000 track-type tractors for the U.S. military.

In the 1940s, Caterpillar tractors were used in the construction of the Alaskan highway; and between 1944 and 1956, they were used to help construct 70,000 miles of highway in the United States. In the 1950s and 60s, usage of Caterpillar tractors around the world exploded and were used in such countries as Australia, Austria, Ceylon, France, Germany, Italy, Nigeria, Philippines, Rhodesia, Russia, Sweden, Switzerland, Uganda, and Venezuela, in a wide variety of projects. In addition, Caterpillar products were used to help construct the St. Lawrence Seaway between Canada and the United States. In the 1970s and 80s, Caterpillar equipment were used in numerous dam, power, and pipeline projects. Since then, Caterpillars have been used in the construction of several projects such as Japan's Kansai International Airport as a marine airport approximately three miles offshore in Osaka Bay, the Chunnel between France and England, the “Big Dig” in Boston, Panama Canal expansion, and several Olympic Games sites.

Discussion

1. The United States Department of Agriculture (USDA), in conjunction with the Forest Service, publishes information to assist companies in estimating the cost of building a temporary road for such activities as a timber sale. Such roads are generally built for one or two seasons of use for limited traffic and are designed with the goal of reestablishing vegetative cover on the roadway and adjacent disturbed area within ten years after the termination of the contract, permit, or lease. The timber sale contract requires out sloping, removal of culverts and ditches, and building water bars or cross ditches after the road is no longer needed. As part of this estimation process, the company needs to estimate haul costs. The USDA publishes variable costs in dollars per cubic-yard-mile of hauling dirt according to the speed with which the vehicle can drive. Speeds are mainly determined by the road width, the sight distance, the grade, the curves and the turnouts. Thus, on a steep, narrow, winding road, the speed is slow; and on a flat, straight, wide road, the speed is faster. Shown below are data on speed, cost per cubic yard for a 12 cubic yard end-dump vehicle, and cost per cubic yard for a 20 cubic yard bottom-dump vehicle. Use these data and simple regression analysis to develop models for predicting the haul cost by speed for each of these two vehicles. Discuss the strength of the models. Based on the models, predict the haul cost for 35 mph and for 45 mph for each of these vehicles.

11. How can a hotel take a proactive stance on fire safety?