University of Venda SCHOOL OF MANAGEMENT SCIENCES DEPARTMENT OF ECONOMICS INTERNATIONAL TRADE AND FINANCE. ECO 3541 FEBRUARY SPECIAL EXAMS 2020 : Module: International Trade and Finance Marks: 100 Time: 3Hours This paper consists of 3 pages including the cover page Internal Examiner Internal Moderator External examiner Mr. B Molatsana Mr. Ramavhona N.L. Prof: M Ocran | Mr. FAR Sikhitha | instructions Answer Any Four (4) QuestionsQuestion 4 [25 marks] a. Discuss the mercantilist view on trade. (5) bb, Two countries, the South Africa and China are potential trading partners and face the following pre-trade exchange ratios: Country ‘Output per labour hour 1Pad Cloth Relative cost RSA 5 sets 15 yards 1 iPad = 3 yards of cloth China Tset B yards iPad = 5 yards of cloth (Which country has an absolute advantage or an absolute disadvantage on iPad and cloth, 6) (i) Using the theory of comparative advantage, indicate which country specialise in which good and drive output gains from trade as a result of specialisation, © (ii) Explain two ways of defining factor abundance within the context of the Heckscher-Ohlin model. 6) (vl) Giving clear examples, explain the concepts of factor intensity. ©) [25] Question 2 [25 marks] Despite the gains from international trade, countries still engage in protectionism in an effort to influence the volume and composition of trade flows into a country. a, State and explain any three instruments of trade policies, ®) b. Critically discuss any four arguments for protectionism. (18) [26] Question 3 [25 marks] a, Define a balance of payments (BOP) of a country. @) b. With the aid of numerical examples, explain the main components of BOP accounts. (18) c. What difficulties could one face when preparing BOP accounts? (4) [28] Question 4 [25 marks] a. Distinguish between: i. Nominal and real exchange rates. (4) ii, Free floating and managed floating exchange rate. (4) b. Critically discuss the South African trade policy, indicating if it effective in making the country internationally competitive. (7)Question § [25 marks] While South Africans were celebrating Human Rights Day on the 21* of March 2018 in South Africa, its current President, Cyril Matamela Ramaphosa was in Kigali Rwanda to finalise and sign a deal for establishing a Free Trade Area (FTA) in Africa. 44 countries signed the deal. If all 54 African Union members eventually signed it up, It would have created a block with a cumulative GDP of $2.5 trillion (2 trillion Euros) and cover a market of about 1.2 billion people. Based on the above statement, answer the following questions: a, What do you understand by the concept, ‘free trade area"? 4) b. Critically discuss any four benefits and any three disadvantages of a free trade agreement. (21) [25]