1. why is wine and beer complementary goods? explain.

2. is spirit and wine complementary goods or substitutes? explain

1. Consider the following table which outlines a simplified basket of goods comprised of three goods, Cheeseburgers, Baseball Tickets, and Toilet Paper. The prices over the last three years are provided.

1. Calculate the cost of the basket of goods in:
   1. 2016

2. 2017

3. 2018

2. What was the inflation between 2016 and 2017?

3. What was the inflation between 2017 and 2018?

4. Using 2016 as the base year. Construct a price index for the price level in:
   1. 2016

2. 2017

3. 2018

You are a consumer who consumes goods X (education) and goods Y (recreation), where the price of good X is PX and the price of Y is Py. Your income that can be allocated to purchase these two items is M.

Questions
a. What happens if the price of education rises? Describe the substitution effect and the income effect.
b. Derive the demand curve for education.

Provide two examples of goods/services that are classified as private goods/services even though they are provided by a local, state or federal government.

1. A basket of goods costs $8,500 in the U.S. Exact same goods basket costs €7,200 in Europe. The exchange rate is €.8144/$.

A.    What is the over/undervaluation of the €?

B.    What is the over/undervaluation of the $?

2. At the start of the year, the exchange rate was $1.35/€. At the end of the year, the exchange rate is $1.43/€. If U.S. inflation was 5% and European inflation was 3%, what has been the nominal and real change in the value of the Euro (versus the USD)?

3. You are going to convert $400 into C$. The bank has a C$1.12/$ bid and C$1.23/$ ask. How many total Canada dollars will you get when you sell the dollars?

4. A firm that issues LT debt and then effectively wants to transform its debt to ST debt can do so by entering into an interest rate swap in which it pays floating and receives fixed. T/F.

5. Given a home country and a foreign country, relative purchasing power parity(RPPP) suggests that: a foreign currency will depreciate if the current home inflation rate exceeds the foreign inflation rate.

6. According to the IFE, if interest rates are 7% in the U.S. and 4% in Japan, what must be the approximate expected change in the value of the dollar?

7. Interest rates are 7% in the U.S. Interest rates are 3% in Europe. You observe me investing in Europe at 3%. What can you infer about what I am expecting the € to do over this next year?

8. Use the following quotes to answer the next ten questions:

Direct Market for ¥/MXN                   Bids               asks

Deutsche Bank’s quote:                          ¥12.33/MXN          ¥12.39/MXN

Barclays’ quote:                               ¥12.31/MXN          ¥12.36/MXN

CSFB’s quote:                             ¥12.34/MXN          ¥12.41/MXN

Citigroup’s quote:                      ¥12.38/MXN          ¥12.44/MXN

Is there a locational arbitrage opportunity?                                 

Which bank’s inventory of MXN will fall?

Which bank’s inventory of MXN will rise?

Which way will Barclay’s move their ¥/MXN ask price?

9. Assume the following information:

              Quoted Price

Spot rate of Mexican peso   $.100/MXN

180 day forward rate of Mexican peso      $.098/MXN

180 day Mexican interest rate (a period rate)    6%

180 day U.S. interest rate (also a period rate)    5%

Given this information, is covered interest arbitrage worth¬while for Mexican investors who have pesos to invest?

Assume that S = $1.50/€. Risk-free interest rates in Europe are 5%. The forward rate of the euro displays a 2% premium relative to the spot rate. What $-denominated, risk-free percentage rate of return can a U.S. investor earn investing in Europe?

10. If the euro’s spot rate is $1.10, what should the one-year forward rate of the euro be?

11. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it has a receivable of C$100000 in 90 days, it could hedge by: (indicate all that are possible): 1. obtaining a 90 day forward buy contract on C$. 2. Buying a 90-day put option on the C$. 3. Selling C$ 90 days from now at the spot rate. 4. Borrowing C$ now(from 90 days), exchanging C$ in $ now.

12. A good costs $862 in the U.S. Same good costs NZ$ 1,700. The exchange rate is $.46/NZ$.

What is the over/undervaluation of the NZ$?

What is the over/undervaluation of the $?

13. If U.S. inflation is 3% and U.K. inflation is 6%, what should be the approximate change in the value of the pound, according to relative PPP?

14. At the start of the year, the exchange rate is £.50/$. At the end of the year, the exchange rate is £.45/$. If U.S. inflation was 20%, and European inflation was 4%, what has been the nominal and real change in the value of the dollar?

15. Assume that the spot exchange rate of the Singapore dollar is $.70/S$. The one year interest rate is 11 percent in the United States and 7 percent in Singapore. What is the expected spot rate in one year according to the IFE?

16. Everything else equal, call and put option premiums will be lower for currencies with lower volatility. T/F

17. The exchange rate at the start if the year was $1.5500/ €. The percentage change in the value of the U.S. dollar over this time period has been?

18. If one US dollar is worth 8 pesos and 12 pesos is worth ¥110 and ¥30 is worth 3 Vebezuelan Bolivars, what is the VEB/USD cross exchange rate?

19. Reducing international trade restrictions is likely to decrease international competition in the production of goods and services. T/F

20. If U.S inflation suddenly decreased while European inflation stayed the same, there would be a decreased U.S. demand for euros and an increased supply of euros for sale.

Cost of Reworked Units

Warren’s Sporting Goods Store sells a variety of sporting goods and clothing. In a back room, Warren’s has set up heat transfer equipment to personalize T-shirts for Little League teams. Typically, each team has the name of the individual player put on the back of the T-shirt. Last week, Shona Kohlmia, coach of the Terrors, brought in a list of names for her team. Her team consisted of 12 players with the following names: Mary Kate, Kayla, Katie, Tara, Heather, Emma, Kimberleigh, Jennifer, Dayna, Elizabeth, Kyle, and Wendy. Shona was quoted a price of $0.60 per letter.

Chip Russell, Warren’s newest employee, took Shona’s order and worked on the job. He selected the appropriate letters, arranged the letters in each name carefully on a shirt, and heat-pressed them on. When Shona returned, she was appalled to see that the names were on the front of the shirts. Jim Warren, owner of the sporting goods store, assured Shona that the letters could easily be removed by applying more heat and lifting them off. This process ruins the old letters, so new letters must then be placed correctly on the shirt backs. He promised to correct the job immediately and have it ready in an hour and a half.

Costs for heat transferring are as follows:

Shona's job originally took one hour and 12 minutes of direct labor time. The removal process goes more quickly and should take only 30 minutes.

Required:

1. What was the original cost of Shona's job? If required, round your answer to the nearest cent.
$

2. What is the cost of rework on Shona's job? Assume that Chip failed to ask whether the names should be placed on the back or the front of the shirts. How should the rework cost be treated? If required, round your answer to the nearest cent.
$

3. Now assume that Shona had mistakenly told Chip to put the names on the front of the shirts. In an effort to keep his customer happy, Jim suggested that Shona pay only for the new letters and the firm would pay for the labor cost. How much did Jim charge Shona in addition to the orginal price of the job?

$

Relationship between Inventory and COGS:

Beginning Inventory + Purchases = Goods Available for Sale.

Goods Available for Sale = COGS + Ending Inventory

1. Which method yields higher net income? (Hint: Higher Ending Inventory means lower COGS. Lower COGS (COGS is an expense account) = Higher Net Income)

2. Which method would a business choose under the income statement approach?

3. Which method would a business choose under the Balance Sheet approach?

Cost of Goods Sold, Cost of Goods Manufactured Gauntlet Company has the following information for January: Cost of direct materials used in production $ 37,000 Direct labor 46,000 Factory overhead 20,000 Work in process inventory, January 1 22,000 Work in process inventory, January 31 30,000 Finished goods inventory, January 1 24,000 Finished goods inventory, January 31 18,000 a. For January, determine the cost of goods manufactured. $ b. For January, determine the cost of goods sold. $

Part 1 Below is a production possibilities table for consumer goods (butter) and capital goods (guns).

Graph the data provided in the table using Excel. (Hints: Type your data into an Excel spreadsheet. With your mouse, highlight the data only. Go to insert. Click on scatter. Click on smooth lines chart. Select the line chart. Plot data drawing line.)

Once you have graphed the data, please copy and paste your graph into a Word document so you can complete the rest of the assessment.

Based on the graph you created, complete the following:

·        Analyze the graphed data to develop assumptions, referencing the possibility curve.

o   Identify the specific assumptions that underlie the production possibilities curve.

o   Determine the cost of more butter, if the economy is at point C. What would be the cost of producing more guns? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?

o   Suppose this hypothetical economy were producing only 1 item of butter and 10 guns, and this was depicted by this production possibilities table and curve. What conclusions could you draw about this economy's resource utilization?

o   Determine whether this economy is able to produce outside its current production possibilities. How might technological changes affect the production possibilities curve? How can international trade allow consumption above its production possibilities curve?