Oo University of Venda SCHOOL OF MANAGEMENT SCIENCES DEPARTMENT OF ECONOMICS International Trade and Finance. ECO 3544 SUPPLEMENTARY DEGREE EXAMINATION JULY 2019 Time: 3Hours Module: International Trade and Finance Marks: 100 C ‘This paper consists of 4 pages including the cover page ___| Internal Examiner Internal Moderator External examiner Mr. B Molatsana Mr, Ramavhona N. L Prof M ocran Mr. E.R Sikhitha Instructions Answer Any Four (4) QuestionsQuestion 1 [25 marks] ‘The two key premises of the Heckscher-Ohlin Model are that commodities differ in their factor requirements and countries differ in their factor endowments. a, Giving clear examples, explain the concepts of factor abundance and factor intensity. [10] b. Consider the table below: Unit Labour Requirements Cheese (X) (wise ) ‘Country A Ghrs perkg 3 hrs per litre Country B ‘(hr perkg _ [2 hrs per litre From the above table, indicate: i. which country has an absolute advantage or an absolute disadvantage on cheese, and on wine. [4] i, the commodity in which country A and B have a comparative advantage (8) tablish the bounds for the terms of trade for free trade to be beneficial to both countries. 3] Question 2 [25 marks] a. Explain any two causes of international trade. (10) b. Explain three characteristics of the mercantilst trade indicating how it influenced South Africa's development. 6 <. Briefly discuss three Heckscher-Ohlin assumptions on the model of trade theory. [9] Question 3 [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, which are applicable in the Republic of South Africa (91 b. Critically discuss any four arguments for protectionism and indicate how relevant they are, in South Africa’s trade [16] Question 4 [25 marks] a. Distinguish between: i. Devaluation and Depreciation i] il. Fixed Exchange Rate and Floating Exchange Rate 4]. Critically discuss South Africa's international trade strategy of import substitution and indicate if itis effective, u7 ‘Question [25 marks] Welfare effects of a tariff: large country Trayorting Country Exporting Country we DF SEQ T a, Answer the following questions based on the above graphs. i. What would be the effects on consumers’ surplus, producers’ surplus and revenue due to an increase in price or an imposition of a tariff? [6] il, What are the effects of a tariff decrease to an exporting country on producer's welfare?[2] b. Using relevant examples and illustrations, explain the fixed and floating exchange rate.[10] c. Critically discuss any two arguments against protection of local industries. 7Question 6 [25 marks] a, Explain what is meant by a nation’s balance of payments and what is its purpose? [4] b. The table below represents hypothetical data (in millions of Rands) of South African international economic transactions. Item. Value Merchandise exports ___ [853775 Unrecorded transactions Ha 119 739 Income receipts on South African assets abroad 64411 Merchandise imports 991 186 Payment for services 158 356 Income payments of foreign assets in South Africa [135756 Current transfers (net receipts) 30 666 Net gold exports 63 687 Net direct investment 24795 Net other investment 54 320 Net portfolio 2740 Service recel Use the data above to compute: i. Balance on merchandise trade ii, Balance on current account, iii, Balance on financial account. (3) (8) 4] c. Explain how exchange rates are determined under the relative purchasing power parity (6] END