Use the information for the next 4 questions The current exchange rate is HKD9.2 per EUR. The information of a call option on EUR is shown in the table below. Type of option Time to maturity Exercise Price Premium per EUR European Call 6 months HKD9.2 HKD0.10 MPP Trading Company (MPP) buys call options for EUR 100,000. 1. What is MPP's potential maximum gain? A. HKD10,000 B. HKD920,000 C. HKD910,000 D. Unlimited 2. What is MPP's potential maximum loss? A. HKD10,000 B. HKD920,000 C. HKD910,000 D. Unlimited 3. What is MPP's gain in HKD when the exchange rate is HKD9.5 per EUR? A. HKD20,000 B. HKD30,000 C. HKD40,000 D. HKD50,000 4. What is MPP's breakeven exchange rate for the option investment? A. HKD9.1 per EUR B. HKD9.2 per EUR C. HKD9.3 per EUR D. HKD9.4 per EUR Use the following information for the next 3 questions. Country A can produce 1,000 kg of bread or 600 litres of juice. Country B can produce 500 kg of bread or 400 litres of juice. 5. What is the opportunity cost of producing 1 kg of bread for Country A? A. 0.6 litre of juice B. 0.8 litre of juice C. 1.25 litres of juice D. 1.67 litres of juice Page 3 of 11 6. What is the opportunity cost of producing 1 litre of juice for Country B? A. 0.6 kg of bread B. 0.8 kg of bread C. 1.25 kg of bread D. 1.67 kg of bread 7. Which of the following is(are) correct? I. Country A should import bread if the 2 countries trade. II. Country A has absolute advantage in producing both bread and juice. A. I only B. II only C. Both I and II D. Neither I nor II 8. R Country trades with S Country. R Country exports computers and imports rice. S Country exports rice and imports computers. In what situation will the relative quantity of computer to rice in the world market rise? I. R Country starts to produce more rice itself. II. S Country has a new technology to increase the rice production by 20%. A. I only B. II only C. Both I and II D. Neither I nor II 9. Country A has 1,000 units of labour and 600 units of capital. Country B has 500 units of labour and 400 units of capital. Which of the following statements is(are) correct? I. Country A is capital abundant Country B is labour abundant. II. A. I only B. II only C. Both I and II D. Neither I nor II 10. Which of the following is(are) correct regarding a country with trade surplus? I. The country's currency will depreciate. The country's value of imports is larger than exports, A. I only B. II only C. Both I and II D. Neither I nor II 11. Which of the following is(are) the correct equation of terms of trade? A. Value of exports minus value of imports. B. Value of imports minus value of exports. C. Value of exports divided by value of imports. D. Value of exports multiplied by value of imports. 12. Which of the following is(are) correct regarding trade volume? I. Studies have shown that the borders of countries have no effect on trade volume. II. Studies have shown that vertical disintegration of production since 1970 has increased the international trade volume. A. I only B. II only C. Both I and II D. Neither I nor II 13. X Country trades with Y Country. X Country exports computer and imports rice. X Country has found a new technology and started producing more rice. How would the 2 countries' terms of trade change? X Country's terms of trade will Y Country's terms of trade will A. Improve Improve B. Improve Deteriorate C. Deteriorate Improve D. Deteriorate Deteriorate Use the following information for the next 2 questions. Home country's wage is $10,000 and the price index level is $50. Foreign country's wage is $13,000 and the price index level is $60. The workers are allowed to move freely between the 2 countries. 14. Which of the following will most likely happen? A. Workers will move from Home country to Foreign country because the nominal wage is higher in Foreign country. B. Workers will move from Home country to Foreign country because the real wage is higher in Foreign country. C. Workers will move from Foreign country to Home country because the price index is lower in Home country. D. Workers will move from Foreign country to Home country because the real wage is higher in Home country. 15. In what situation will the workers stop moving from one country to the other? A. The price level in Home country is $60. B. The price level in Foreign country is $50. C. The wage in Home country is $10,500. D. The wage in Foreign country is $12,000