Globalb business final exam

1. Please visit the following link on the Economist.com and answer the following three questions based on data from any of the tables here. (There are about half a dozen tables linked under “economic and

financial indicators” on the right side of the page. These tables contain data on output, prices, wages,

inflation, interest rates etc.)

 

http://www.economist.com/markets-data

 

For the purposes of answering these questions, assume that interest rates refer to the annual rates on

10-year government bonds. If necessary, please state any other assumptions. Based on Britain (₤)

and Canada (C$):

 

a. For practical purposes, does real interest rate parity exist between these two countries? Please show me your calculations.

 

b. Compared to last year, has the C$ appreciated or depreciated against the pound, and by how much? (Please provide your reasoning and computations). Is this what you would expect based

on your answer to part a? Explain your reasoning.

 

c. Identify any two other factors from the tables that, in general, predict exchange rate appreciation or depreciation, and determine if the appreciation or depreciation of the C$ is consistent with

what you might predict

 

 

 

 

2. In general, several variables appear to affect the future value of a currency. Everything else being equal, with reference to the home country, clearly explain in a couple of sentences how each of the

following variables are likely to appreciate or depreciate the country’s currency: (please think

carefully before you answer these questions). (6 points)

 

a. Increase in GDP/output b. Increase in money supply (M) c. Increase in nominal interest rate (In) d. Increase in real interest rate (Ir) e. Increase in inflation f. Increase in current account surplus

 

 

 

 

3. Compare and contrast home replication, global, transnational and multi-domestic strategies. Please provide some examples of each type of strategy in your discussion. Please ensure that your

discussion contains an understanding of the conditions under which each strategy might be considered

appropriate.

 

 

2 points

2 points

2 points

2 points

3 points

 

 

4. You are considering exchanging Swiss Francs (SF) for Japanese Yen (Y). At the bank, you see the following rates posted. (Please note that for full credit, you must show the steps to the correct answer

clearly and cleanly, not just the final answer.)

SF/$ = 0.9154 Y/$ = 100.26

 

a. What is the Y/SF exchange rate? b. What is the SF/Y exchange rate? c. If the SF appreciated by 10% what would then new rate be? d. If the Yen depreciated by 25% relative to the original exchange rate (i.e. answer to part a, or

part b), what would the new rate be?

 

 

5. In recent months, several emerging markets such as India, Indonesia, Brazil and to a lesser extent Brazil have seen a sharp depreciation of their currencies against the US dollar, as well as an increase

in volatility of their markets. In order to address this issue, suppose a country like Indonesia were

tomorrow to announce the following new policies by the central bank:

 Fixed exchange rate of the Indonesian rupiah against the dollar through open market operations

 Free flow of capital in and out of Indonesia

 Continuous adjustment of monetary policy by the central bank Is this a good strategy? What are the likely outcomes of such a strategy? (This is a thinking question!

Hint: suppose there is a large downward pressure on the rupiah and the bank needs to conduct open

market operations to keep it fixed. What will happen to the other two aspects of the bank’s strategy?)

 

 

6. Consider a small country, MadHatterLand that trades goods and assets with the rest of the world consisting of perfect capital markets.

a. Suppose MadHatterLand has a completely fixed exchange rate maintained through open market purchases and sales of currency. The governor of the Central Bank, Ms. March Hare, attempts to

increase aggregate domestic demand through an open market expansion of money supply.

i. What will happen to the Balance of Payments (BOP- basically trade surplus or deficit) and why?

ii. What will happen to the foreign exchange holdings of the Bank and why? b. Now suppose MadHatterLand has a fully floating exchange rate. Again, Ms. March Hare

chooses to expand domestic demand through expansion in money supply.

i. What will happen to the overall BOP and why? ii. What will happen to the exchange rate and why?

 

 

7. Intellectual property (IP) is one of the most important areas of study in international business. Your textbook discusses TRIPS and attempts to harmonize IP laws across countries. Nevertheless IP laws

continue to be less than harmonized across countries. Please answer the following questions

analytically. Why do we have IP laws in the first place, especially separate from property laws that

already exist? Given the existence of these laws, what explains why for instance in the US we have a

17 year time period for patents, or 70 years after life for copyright, etc? In other words, where do

these numbers come from? Finally, why do different countries differ in their IP laws? For example,

most countries have different time periods for patents and copyrights, as well as different systems

(first-to-file versus first-to-invent) for determining IP ownership. While answering the last part of

this question, please consider cultural, economic, social, political, religious and other factors that

might explain IP differences. (4 points)

 

4 points

3 points

4 points 4 points

3 points