Finance Of International Trade 1st Edition Eric Bishop - Solutions

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3. Starting from the long-run equilibrium without trade in the monopolistic competition model, as illustrated in Figure 6-5, consider what happens when the Home country begins trading with two other identical countries. Because the countries are all the same, the number of consumers in the world is
12. A housekeeper from the Philippines is contemplating immigrating to Singapore in search of higher wages. Suppose the housekeeper earns approximately $2,000 annually and expects to find a job in Singapore worth approximately $5,000 annually for a period of three years. Furthermore, assume that
11. Figure 5-14 is a supply and demand diagram for the world labor market. Starting at points A and A*, consider a situation in which some Foreign workers migrate to Home but not enough to reach the equilibrium with full migration (point B). As a result of the migration, the Home wage decreases
10. In Table 5-2, we show the growth in the real rental and real wages in Singapore, along with the implied productivity growth. One way to calculate the productivity growth is to take the average of the growth in the real rental and real wage. The idea is that firms can afford to pay more to labor
9. Recall the formula from the application“The Effect of FDI on Rentals and Wages in Singapore.” Give an intuitive explanation for this formula for the rental rate. Hint: Describe one side of the equation as a marginal benefit and the other as a marginal cost.
8. Continuing from Problem 7, we now use the factor price insensitivity result to compare factor prices across countries in the HeckscherOhlin model.a. Illustrate the international trade equilibrium on the Home and Foreign production possibilities frontiers. Hint: You can refer to Figure 4-3 to see
7. In this question, we use the Rybczynski theorem to review the derivation of the HeckscherOhlin theorem.a. Start at the no-trade equilibrium point A on the Home PPF in Figure 4-2, panel (a). Suppose that through immigration, the amount of labor in Home grows. Draw the new PPF, and label the point
6. Suppose that computers use 2 units of capital for each worker, so that KC = 2 • LC, whereas shoes use 0.5 unit of capital for each worker, so that KS = 0.5 • LS. There are 100 workers and 100 units of capital in the economy.a. Solve for the amount of labor and capital used in each
5. According to part A of Table 5-1, what education level loses most (i.e., has the greatest decrease in wage) from immigration to the United States? Does this result depend on keeping the rental on capital constant? Explain why or why not.
4. In the short-run specific-factors model, consider a decrease in the stock of land. For example, suppose a natural disaster decreases the quantity of arable land used for planting crops.a. Redraw panel (a) of Figure 5-11 starting from the initial equilibrium at point A.b. What is the effect of
3. Consider an increase in the supply of labor due to immigration, and use the long-run model.Figure 5-8 shows the box diagram and the leftward shift of the origin for the shoe industry.Redraw this diagram but instead shift to the right the origin for computers. That is, expand the labor axis by
1. In the short-run specific-factors model, examine the impact on a small country following a natural disaster that decreases it population. Assume that land is specific to agriculture and capital is specific to manufacturing, whereas labor is free to move between the two sectors.a. In a diagram
12. According to the standard Heckscher-Ohlin model with two factors (capital and labor) and two goods, movement of Turkish migrants to Germany would decrease the amount of capitalintensive products produced in Germany. Discuss whether this is true or false, and explain why.
11. According to the Heckscher-Ohlin model, two countries can equalize wage differences by either engaging in international trade in goods or allowing high-skilled and low-skilled labor to freely move between the two countries. Discuss whether this is true or false, and explain why.
10. Following are data for soybean yield, production, and trade for 2010–2011:Suppose that the countries listed in the table are engaged in free trade and that soybean production is land-intensive. Answer the following:a. In which countries does land benefit from free trade in soybeans?
9. The following are data on U.S. exports and imports in 2012 at the two-digit Harmonized Tariff Schedule (HTS) level.Which products do you think support the Heckscher-Ohlin theorem? Which products are inconsistent? 52 HTS Level 22 30 Product Beverages Pharmaceutical products Cotton Export ($
8. On March 2, 2013, Tajikistan successfully negotiated terms to become a member of the World Trade Organization. Consequently, countries such as those in western Europe are shifting toward free trade with Tajikistan.What does the Stolper-Samuelson theorem predict about the impact of the shift on
7. In Figure 4-3, we show how the movement from the no-trade equilibrium point A to a trade equilibrium at a higher relative price of computers leads to an upward-sloping export supply, from points A to D in panel (b).a. Suppose that the relative price of computers continues to rise in panel (a),
6. Suppose when Russia opens to trade, it imports automobiles, a capital-intensive good.a. According to the Heckscher-Ohlin theorem, is Russia capital-abundant or laborabundant?Briefly explain.b. What is the impact of opening trade on the real wage in Russia?c. What is the impact of opening trade
5. Using a diagram similar to Figure 4-12, show the effect of a decrease in the relative price of computers in Foreign. What happens to the wage relative to the rental? Is there an increase in the labor–capital ratio in each industry? Explain.
4. Using the information in the chapter, suppose Home doubles in size, while Foreign remains the same. Show that an equal proportional increase in capital and labor at Home will change the relative price of computers, wage, rental on capital, and the amount traded but not the pattern of trade.
3. Suppose there are drastic technological improvements in shoe production at Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for the Home country:Computers: Sales revenue = PCQC = 100 Payments to labor = WLC = 50 Payments to
2. Leontief’s paradox is an example of testing a trade model using actual data observations. If Leontief had observed that the amount of labor needed per $1 million of U.S. exports was 100 person-years instead of 182, would he have reached the same conclusion? Explain.
1. This problem uses the Heckscher-Ohlin model to predict the direction of trade. Consider the production of handmade rugs and assembly line robots in Canada and India.a. Which country would you expect to be relatively labor-abundant, and which is capitalabundant?Why?b. Which industry would you
12. In the text, we learned that workers displaced by import competition are eligible for compensation through the Trade Adjustment Assistance program. Firms are also eligible for support through Trade Adjustment Assistance for Firms, a federal program that provides financial assistance to
11. Similar to Home in Problem 10, Foreign also produces computers and wheat using capital, which is specific to computers; land, which is specific to wheat; and labor, which is mobile between the two sectors. Foreign has 100 workers and 100 units of land but only 10 units of capital. It has the
10. Home produces two goods, computers and wheat, for which capital is specific to computers, land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100 units of capital but only 10 units of land.a. Draw a graph similar to Figure 3-1 with the output of
9. Suppose two countries, Canada and Mexico, produce two goods: timber and televisions.Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When Canada and Mexico engage in free trade, the relative price of televisions
8. In the specific-factors model, assume that the price of agricultural goods decreases while the price of manufactured goods is unchanged(DPA /PA < 0 and DPM /PM = 0). Arrange the following terms in ascending order:DRT/RT DRK/RK DPA/PA DPM/PM DW/W Hint: Try starting with a diagram like Figure 3-5,
7. Read the article by Lori G. Kletzer and Robert E. Litan, “A Prescription to Relieve Worker Anxiety,” Policy Brief 01-2(Washington, D.C.: Peterson Institute for International Economics), available online at http://www.iie.com/publications/pb/pb.cfm?researchid=70, which refers to the U.S.
6. If instead of the situation given in Problem 5, the price of manufacturing were to fall by 10%, would landowners or capital owners be better off? Explain. How would the decrease in the price of manufacturing affect labor? Explain.
5. Use the information given here to answer the following questions:Manufacturing:Sales revenue = PM • QM = 150 Payments to labor = W • LM = 100 Payments to capital = RK • K = 50 Agriculture:Sales revenue = PA • QA = 150 Payments to labor = W • LA = 50 Payments to land = RT • T = 100
4. Starting from equilibrium in the specific-factors model, suppose the price of manufactured goods falls so that wages fall from W ′ to W in Figure 3-5.a. Show that the percentage fall in the wage is less than the percentage fall in the price of manufacturing so that the real wage of labor in
3. In the gains from trade diagram in Figure 3-3, suppose that instead of having a rise in the relative price of manufactures, there is instead a fall in that relative price.a. Starting at the no-trade point A in Figure 3-3, show what would happen to production and consumption.b. Which good is
2. Figure 3-7 presents wages in the manufacturing and services sectors for the period 1973 to 2012. Is the difference in wages across sectors consistent with either the Ricardian model studied in Chapter 2 or the specific-factors model? Explain why or why not.
1. Why is the specific-factors model referred to as a short-run model?
12. Using the results from Problem 11, explain why the Ricardian model predicts that Mexico would gain more than the United States when the two countries signed the North American Free Trade Agreement, establishing free trade between them. Pw/Pc 1 Foreign imports Home exports 1/2 0 50 D 80 100 Wheat
11. (This is a harder question.) Suppose that the Home country is much larger than the Foreign country. For example, suppose we double the number of workers at Home from 25 to 50.Then Home is willing to export up to 100 bushels of wheat at its no-trade price of PW /PC = 12 rather than 50 bushels of
10.a. Using Figure 2-5, show that an increase in the relative price of wheat from its world relative price of 23 will raise Home’s utility.b. Using Figure 2-6, show that an increase in the relative price of wheat from its world relative price of 23 will lower Foreign’s utility.What is
9.a. Suppose that the number of workers doubles in Home. What happens to the Home PPF and what happens to the no-trade relative price of wheat?b. Suppose that there is technological progress in the wheat industry such that Home can produce more wheat with the same amount of labor. What happens to
7. Assume that Home and Foreign produce two goods, TVs and cars, and use the information below to answer the following questions:a. What is the marginal product of labor for TVs and cars in the Home country? What is the no-trade relative price of TVs at Home?b. What is the marginal product of labor
6. Answer the following questions using the information given by the accompanying table:a. Complete the table for this problem in the same manner as Table 2-2.b. Which country has an absolute advantage in the production of bicycles? Which country has an absolute advantage in the production of
5. Now suppose the world relative price of cars is PC /PTV = 1.a. In what good will each country specialize?Briefly explain why.b. Graph the new world price line for each country in the figures in Problem 4, and add a new indifference curve (U2) for each country in the trade equilibrium.c. Label
4. Suppose that in the absence of trade, Home consumes nine cars and two TVs, while Foreign consumes two cars and nine TVs. Add the indifference curve for each country to the figures in Problems 2 and 3. Label the production possibilities frontier (PPF), indifference curve (U1), and the no-trade
3. Suppose that each worker in the Foreign country can produce two cars or three TVs. Assume that Foreign also has four workers.a. Graph the production possibilities frontier for the Foreign country.b. What is the no-trade relative price of cars in Foreign?c. Using the information provided in
2. Suppose that each worker in the Home country can produce three cars or two TVs. Assume that Home has four workers.a. Graph the production possibilities frontier for the Home country.b. What is the no-trade relative price of cars at Home?
1. At the beginning of the chapter, there is a brief quotation from David Ricardo; here is a longer version of what Ricardo wrote:England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the
2. The quotation from Federal Reserve Chairman Ben Bernanke at the beginning of the chapter is from a speech that he delivered in JacksonHole, Wyoming, on August 25, 2006, titled “Global Economic Integration: What’s New and What’s Not?” The full transcript of the speech is available at
1. Figures 1-2 and 1-6 rely on data from 2010, and Figure 1-5 relies on data from 2005, to map worldwide trade, migration, and FDI.Updated data for migration and FDI were not available at the time this chapter was written, but it is available for worldwide trade. In this question, you are asked to
16 Do the bills of lading show a ‘notify’ party?
15 Are the bills of lading stamped ‘freight paid’ or ‘freight payable at destination’ as stipulated in the credit? Are they properly issued and endorsed?
14 Is a full set of bills of lading being presented? If not, does the credit allow an original to go direct to consignee?
13 Does it show the name of the agent responsible for handling claims and is it properly endorsed?
12 Is the insurance document dated no later than the transport document?
11 Is the insurance document issued for the correct percentage of cover, usually 10% above CIF value and is it in the same currency as the credit?
10 Are all documents issued by the parties stipulated in the credit?
9 Are miscellaneous documents, such as packing list, inspection certificate, weight note, etc., issued separately and not combined with other documents?
8 Has the invoice or certificate of origin been certified and/or legalized if required under the credit terms?
7 Where documents include shipping marks, are they exactly as shown on the document of despatch?
6 Does the invoice agree with supporting documents as regards unit price, description of goods, weight and term of shipment?
5 Is the invoice issued by you and is your name shown exactly as stated in the credit?
4 Is the draft drawn correctly and for the tenor stipulated in the credit?
3 Is the draft to be drawn on issuing or confirming bank?
2 Is the available balance sufficient to cover presentation?
1 Is credit still valid?
7 Remember, if you are importing goods under an irrevocable credit and intend selling those goods on to a final buyer, the issuing bank will either want you to pay immediately you take up the documents or will need some form of security to ensure it is paid by your buyer.
6 If your supplier asks for a confirmed irrevocable credit make sure that your issuing bank stipulates that confirmation charges are for account of the beneficiary (your supplier) – they can be high!
5 It can be made available to a supplier anywhere in the world, in any currency.
4 You are strongly advised not to include contract details in your documentary credit applications. The reason is obvious: if you amend the terms of your contract with the exporter, the credit will also require amendment if it contains contract details. If you should overlook or delay the credit
3 Where the contract does not specify the terms of the credit, any subsequent agreement between the two parties as to its terms following issue by the applicant’s bank may be said to supplement the contract of sale (Shamsher Jute Mills Ltd v. Sethia (London) Ltd, 1987).
2 You may send a pre-advice of the credit, but if you do so through your bank make sure that it is sent ‘without engagement’ otherwise the bank will be obliged to issue the full credit subsequently.
1 If your contract does not state specifically the terms of the credit, you should have it opened as you think appropriate and leave your supplier to accept or reject it.
Can be payable at a future determinable date, thus allowing you to obtain credit from your supplier, i.e. it can be payable 30/60/90/180 days from presentation of documents and is known as a usance or term credit.These credits are particularly useful when importers are selling on to buyers who, in
Can be payable as to, say, 85% against shipping documents with a balance of 15% payable after independent inspection at port of destination.If your supplier is not prepared to wait for payment of the 15% balance, it can be 100% provided he presents, with his shipping documents, a retention bond
Can permit advance payment(s) against suitable security, e.g. bankers advance payment bond, warehouse warrant (approved warehouse).
Can be payable against documents which include a performance bond issued by a bank acceptable to the issuing bank.
Can include documents which will evidence that the goods are as described in the buyer/seller contract, e.g. independent inspection report.
Will ensure that your supplier cannot be paid if those documents are out of order.
Will ensure that your supplier cannot be paid until he produces and presents the documents stipulated in the credit.
they will not request advance payments without offering acceptable security?
they will deliver goods of perfect quality?
they will complete delivery of the required goods within the prescribed time allowed?
they will fully comply with the terms of your contract with them?
7 If the negotiating bank refuses your documents due to a discrepancy(ies):ask for them back and correct the discrepancy(ies), or request the negotiating bank to telex the issuing bank for authority to pay, or ask for the documents to be sent to the issuing bank for applicant’s approval, or ask
6 Make certain that you present all the required documents when requesting negotiation under the credit and ensure that they are in full compliance with the terms.
5 Diarize the latest shipment and expiry dates, especially if you are producing or manufacturing goods. If you miss the latest shipment date you are entirely at the mercy of the applicant who may either:agree to extend by asking for a price reduction refuse to extend because the market has moved in
4 If their standing does not satisfy you, ask the advising bank to add their confirmation to the letter of credit. (Remember, you may have to pay the charges!)
3 If the issuing bank is unknown to you, ask the advising bank to provide details of their standing.
2 Check required documentation and request amendment from the applicant if you cannot comply. For example, legalization of invoices or certificate of origin may be impossible in your town/city of business.
1 Check that validity and latest shipment dates can be met.
2 Once issued, the credit is available until expiry; cancellation can only be made with the agreement of all parties.
1 The credit contains an undertaking by the issuing bank that, provided the beneficiary (exporter) complies with all its terms and presents documents in order within the validity date, he will be paid, thus he does not have to worry about his buyer’s ability to pay.
documentation required; this is particularly important where the applicant is not the actual importer, but simply a merchant selling the goods on to an importer possibly in another country description of goods (possibly the most critical factor in irregular documents), the quantity and the unit
exact type required, e.g. straight, negotiation, revolving, red clause, etc.
whether documentary credits should be confirmed or unconfirmed, sight or usance
what is to happen to the bill of exchange after it has been accepted(discount, etc.)how proceeds of the collection are to be remitted back.
whether documents may be released to the buyer even if he refuses to pay the collecting bank’s charges
in the event of non-payment whether they wish the relative goods to be warehoused and insured
Q35 What do you understand by the term compensation when applied to a countertrade deal?
Q34 What is the term used to describe a deal set up solely for the exchange of goods?

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Finance Of International Trade 1st Edition Eric Bishop - Solutions

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