REVIEW OF THE SUBJECT INTERNATIONAL ECONOMICS

1. General information
- Time: 90 minutes
- Materials are not allowed to be used during the exam
- The exam includes 25 multiple choice questions (5/10 points) and 03 short essays
(5/10 points)
2. Review the contents
2.1. MCQs
Part 1: International Trade
- Introduction:
o Definition of international trade, autarky/closed economy
o Trade openness ratio
o Gravity model
- International trade theories:
o Mercantilism
o Absolute advantage theory
o Comparative advantage theory: comparative advantage, opportunity
cost, PPF, range of price, the pattern of trade, benefits from trade
o Factor endowments and the H-O model: factor abundance, factor
intensity, PPF, the pattern of trade, benefits from trade
- Tariff: Types, objectives, effects, ERP - an effective rate of protection (2
inputs),
- Non-tariff barriers: Quota, Export subsidies, Dumping (predatory vs. persistent
dumping).
Part 2: International resource movement and multinational corporations
- International Investment: Definition and types of international investment;
Concepts, motivations, and benefits of FPI and FDI; horizontal vs. vertical
FDI; Figures illustrate capital movement from one nation to another nation.
- MNCs: definition, motivations, impacts on the host country and home country
- International labor movement: Figures illustrate labor movement from one
nation to another nation, brain drain.
Part 3: International Finance
- BOP: definition, structure, accounting principles, surplus, deficit
- Foreign exchange market and foreign exchange rates
 o Foreign exchange market: definition, characteristics, functions, actors
o Foreign exchange rate: definition, classification (cross exchange rate),
determinants, exchange rate equilibrium, depreciation, appreciation,
devaluation, revaluation.
o Hedging in the forward market
- International monetary system: Exchange rate regime, e.g., fixed, freely
floating exchange rate regime, etc.
2.2. Essays
Part 1: 1 question (2 points)
- Ricardo highlighted that nations with low productivity and absolute
disadvantages in all goods can still gain from trade. Does this imply that we need not
worry about countries with lower labor productivity than the global average? Provide
a brief explanation supported by examples.
- If a tariff and a quota result in the same volume of imports, they will exert
identical influences on prices and welfare. Do you concur with this statement? Provide
a concise explanation.
- David Ricardo's theory of comparative advantage suggests that trade won't
happen if a country is less efficient in producing all goods. Do you support this
statement? Offer a brief explanation and support your response with numerical
examples.
- Consider the following hypothetical data on labor requirements in A and B to
produce two goods C and D:
A B
Labor needed to make one C 3 hours 4 hours
Labor needed to make one D 9 hours 20 hours

a. What is the opportunity cost of D in each country?

b. Identify the comparative advantage of each nation and the pattern of trade.
c. What is the international exchange rate (D per C) possible with free trade?
d. If two countries agree to trade at a price of one D for four Cs, which country
will get the higher benefit?

Part 2: 1 question (1 point)

- A French investor acquires a hundred shares in an American corporation,
constituting a minor ownership stake. The investor is entitled to receive dividends,
participate in shareholder decisions, and trade the stock for potential profit or loss.
The primary concern lies in the short-term value of the stock rather than the
company's long-term profitability. If the share price experiences significant
fluctuations, the investor may opt to swiftly sell the share. Define whether the French
investor's investment is categorized as FDI or FPI and provide the rationale.
- Examine the reasons why labor migration can yield both positive and negative
consequences for unskilled immigrants.
- Assess the positive and negative impacts on both emigration and immigration
countries stemming from the migration of skilled labor.
- Elaborate on the methods through which Multinational Corporations (MNCs)
can implement transfer pricing.
Part 3: 1 question (2 points)
- A speculator anticipated a decline in the euro's exchange rate and bought a put
option to sell one million euros with an exercise rate of 1.3 dollars per euro. The
option premium was 1% of the contract value. On the expiration date, the spot rate for
the euro was 1.28 dollars. Calculate his gain or loss.
- An exporter purchases a put option to sell €100,000 in three months, with the
exercise rate set at $1 = €1 and a premium of 1% of the contract value. After three
months, the spot rate is $0.98 = €1. Will the exporter exercise the option on the due
date?
- Suppose a speculator expected a decrease in the euro's exchange rate and
acquired a put option to sell one million euros at the exercise rate of 1.3 dollars per
euro. The option premium was 1% of the contract value. On the expiration date, the
spot rate for the euro reached 1.31 dollars. Calculate his gain or loss.
- An exporter buys a put option to sell €100,000 in three months, with the
exercise rate set at $1 = €1 and a premium of 1% of the contract value. After three
months, the spot rate is $1.02 = €1. Will the exporter exercise the option on the due
date?