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Author Question: Suppose that at some point the spot exchange rate is equal to 100 yen per one U.S. dollar, while the ... (Read 70 times)

DelorasTo

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on: Jun 30, 2018
Suppose that at some point the spot exchange rate is equal to 100 yen per one U.S. dollar, while the interest rate in dollars is 6 and the interest rate in yen is 1. What is the approximate forward rate that is consistent with this situation?
 
  A) 95.3 yen per dollar
  B) 105 yen per dollar
  C) 107 yen per dollar
  D) 92 yen per dollar

Question 2

Refer to above figure. Imagine that the relative capital abundance of Australia was so much greater than that of Sri-Lanka, that we would have to locate Australia far to the right on the K/L axis.
 
  If this were so far to the right that there was no area of overlap on the w/r axis, then what product would Australia export? Which product will each of the trade partners export? Will the relative wages as calculated now be the same or different in both Australia and Sri Lanka?


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kswal303

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A

Answer to Question 2

Australia would still export food. As a result of trade, wages will fall in Australia and will rise in Sri-Lanka. However, in this case, the wages in Australia will remain higher than in Sri-Lanka, creating an incentive for migration from the latter to the former country.


DelorasTo

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Reply 2 on: Jun 30, 2018
Thanks for the timely response, appreciate it

bulacsom

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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