\o 0: : gy University of Venda SCHOOL OF MANAGEMENT SCIENCES, DEPARTMENT OF ECONOMICS International Trade and ance ECO 3541 _MAIN EXAMINATION MAY/JUNE 2019 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 ProfM Ocran Mr. E.R Sikhitha structi Answer Any Four (4) Questions 1[PageQUESTION 1 — (25 Marks) 1.1 Briefly discuss four causes of international trade. 1.2 Explain three international trade problems as experienced by developing countries such as South Africa. 1.3 Define the concept international trade. 1.4 Discuss six characteristics of mercantilist trade indicating how it influenced South Africa’s development. QUESTION 2 (25 Marks) 2.1 Discuss seven assumptions according to Heckscher — Ohlin Model. 2.2 Briefly discuss Adam Smith absolute advantage theory. 2.3 Differentiate between capital abundance and factor intensity. 2.4 Define the concept increasing return to scate. QUESTION 3 — (25 Marks) Critically discuss the South African trade policy indicating if it is effective in making the country competitive. QUESTION 4 (25 Marks) Despite the gains from international Trade, countries still engage in some form of protectionism to influence the volume and composition of trade flows into ‘the country (you may use US and China current trade problems), 4,1 Mention and explain any three instruments of trade policies. 4.2 With the aid of a graph, explain the impact of a tariff imposition on: (i) Consumption. (li) Production. 4.3 Critically discuss any two arguments for protection. 2[Page (3) (3) (2) (12) (13) (6) (4) (2) (25) (9) (5) (5) (6)QUESTION 5 (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, fall 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 extract, answer the following questions: ‘a. What do you understand by the concept “free trade area”? (3) b. Critically discuss any four benefits of a free trade agreement between countries. (12) c. Discuss Southern African Customs Union in details. (10) [25] QUESTION 6 (25 Marks) 6.1 Explain what is meant by a nations balance of payment and what isits purpose? (4) 6.2 The table below represents hypothetical data (in millions of Rands) of South Africa’s international economic transactions. tem Value Merchandise exports 853.715 Unrecorded transactions ee [219739 Income receipts on South Africa’s assets abroad 64441 Merchandise imports 991 186 Payment for services «| 888 356 Income payments of foreign assets in South Africa 135 756 Current transfers (net receipts) 30 666 | Net gold exports # | 63887 Net direct investment 20795 Net other investments 54320 Net portfolio investment ____ | 2740 Service receipts 136 751 Use the above data to compute: 6.2.1 Balance of trade. (3) 6.2.2 Balance of payment. (6) 6.3 Define the concept exchange rates. (3) 6.4 Show the differences between fixed and floating exchange rates. (9) 31 Page