Sugar Policy

1.    If the U.S. abandoned its sugar policy, what would be the effect on:
A.    Sugar industry (World)
B.    Who would benefit
C.    Who would lose


2.    Why are U.S. Trade Policies toughest on the Poor?

3.    Why does the U.S. Protect the American sugar industry?

4.    Using your knowledge of comparative advantage, describe what actions you would take on the sugar policy? Would you remove tariffs quotas or keep the policies? Explain argumentatively

5.    If free trade was allowed in the sugar industry, explain the effects on the underdeveloped countries that could now export sugar. (Hint…use words like GDP, productivity, standard of living, infrastructure and capital investment)

6.    Why are sugar refineries in the U.S. not making efforts to refine sugar more efficiently and environmentally friendly?

Suppose that the $/€ spot exchange rate is 1.20 $/€ and the 1 forward rate is 1.24$/€. The yields on 1 U.S. and EU. Treasury Bills are U.S 10% and EU 7%. Use the exact form interest parity condition. Note that these numbers are hypothetically constructed to give arbitrage profits.

(1) Calculate the covered interest differentials using Covered IPC (extra profits from investing in EU).

(2) Suppose that U.S. investor is considering a covered investment in EU Treasury bills financed by borrowing from U.S. banks at 12% interest rate. Given the exchange rates above, would the investor can obtain profits from this investment? If so, how much?

(3) (continue from question 2) Suppose that this investor also faces transaction costs that further reduce the gains from investing abroad by 0.80%. How much proifit would this investor get from this?

（1） A study reported that 55% of Americans say parents are doing too much for their young adult children these days. The smallest sample size for which the sampling distribution of sample proportion is approximately normal is （ ） . (Your answer must be an integer.)

（2）To estimate the average income among all U.S. workers, we obtain a simple random sample of 1000 U.S. workers and calculate their average income. Then, we should

(I) conclude that the average income among all U.S. workers is the value we calculated.

(II) compute a confidence interval for the average income of all U.S. workers.

(III) perform a test of significance to see if the sample data are reliable.

A. (I) only B. (II) only C. (III) only D. (I) and (II) only E. (I) and (III) only F. (II) and (III) only

1. Kavita Raman is a foreign exchange trader for a bank in New York. She can borrow $1 million (or its Swiss franc equivalent) at her disposal for a short term money market investment. Kavita wonders whether she should make an uncovered interest arbitrage (UIA) transaction. She faces the following quotes:

2. Which currency should she borrow, and how much is the payoff in terms of U.S. dollars in case of uncovered interest arbitrage (UIA) transaction?

Consider the exchange rate between the U.S. $ and the U.K. £. Suppose the exchange rate E ∗ is defined as £/$.

(a) Denote the one-year forward exchange rate (at time t) for time t+1 by F ∗ t+1. Suppose the nominal interest rate in the U.S. is 8%, the nominal interest rate in the U.K. is 5%, the current exchange rate E ∗ t is £0.67/$, and the forward exchange rate F ∗ t+1 is £0.625/$. Are the numbers given here consistent with the interest rate parity equation? Clearly show all calculations. Based on this information, would you prefer to invest in the U.S. or in the U.K.?

(b) What effect will the difference between the effective rate of return in the two countries (if any) from part (a) have on the exchange rate (E ∗ ). Clearly show all calculations, and illustrate your answer using a well-labeled graph.

(c) Consider the exchange rate determined in part (b). Suppose that the Fed (the U.S. central bank) adopts a policy to lower the inflation rate by 2% in the U.S. Explain the effect of such a monetary policy on the exchange rate (E ∗ ). Clearly explain your answer, and illustrate your answer using a well labeled graph.

Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially ¥90/$. According to purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and by 15 percent in Japan, what will be the expected exchange rate?

If Mexico dollarizes its currency, it essentially

__________ is a currency basket, defined by the International Monetary Fund, to which some nations peg their currencies

If Japan has floating rate, a depreciation in the value of Japanese yen over time will result in Japanese

Part A)

We saw that the Heckscher-Ohlin-Vanek prediction does not find support in data. Which of the following assumptions of the Heckscher-Ohlin model is likely to be the culprit

Different goods have different factor intensities

Different countries have different endowments

Factors of production are mobile within a country

Countries have identical technologies

Part B)

Which of the following statements describes offshoring?

a)It refers to the export of capital services by a country.

b)It refers to the export of labor services by a country.

c)It refers to the export of goods by a firm.

d)It refers to the purchase of inputs by a firm from abroad.

Part C)

Greater offshoring by the U.S. firms to Mexico can explain

a)the rise in the rent of land in the U.S.

b)the rise in wage inequality in both the U.S. and Mexico.

c)the fall in wage inequality in both the U.S. and Mexico.

d)the rise in inequality in Mexico and the fall in inequality in the US.

Part D)

The simultaneous export and import of Golf Clubs by the U.S. can be explained using

a)the Ricardian Model of Comparative Advantage.

B)the Heckscher-Ohlin model.

c)the model based on economies of scale and love of variety.

d) the Rybczynski theorem.

Sun Bank USA has purchased an 8 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1.

a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32))

b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)? (Round your answer to 5 decimal places. (e.g., 32.16161))

Cost of Capital. Blues, Inc. is an MNC located in the U.S. Blues would like to estimate its weighted average cost of capital (WACC). On average, bonds issued by Blues yield 7 percent. Currently, Treasury security rates are 2 percent. Furthermore, Blues’ stock has a beta of 2, and the return on the Wilshire 5000 stock index is expected to be 8 percent. Blues’ target capital structure is 40 percent debt and 60 percent equity. If Blues is in the 30 percent tax bracket, what is its weighted average cost of capital?

Hint Use: and then  

Slater Co. is a U.S.-based MNC that finances all operations with debt and equity. It borrows U.S. funds at an interest rate of 6 percent per year. The long-term risk-free rate in the U.S. is 3 percent. The stock market return in the U.S. is expected to be 10 percent annually. Slater’s beta is 1.5. Its target capital structure is 30 percent debt and 70 percent equity. Slater Co. is subject to a 30% corporate tax rate. Estimate the cost of capital to Slater Co.

Hint Use: and then