Fakultät III Univ.-Prof. Dr. Jan Franke-Viebach

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1 Univ.-Prof. Dr. J. Frank-Vibach 1 Univrsität Sign Fakultät III Univ.-Prof. Dr. Jan Frank-Vibach Exam Intrnational Economics Wintr Smstr (2 nd Exam Priod) Availabl tim: 60 minuts Solution For your attntion: 1. Th xam is mad up of 9 pags (including this covr pag). Plas chck and s if th xam you ar holding is complt. 2. For your answrs, us th dsignatd spacs. Should ths not suffic, us th backsid of th pags. Answrs writtn in pncil will not b scord. 3. Additional matrials you may us for th xam: a non-programmabl calculator. (Smart phons and mobil phons ar not allowd!) 4. ATTENTION: Th nams for variabls hav th sam maning as in th lctur. Insofar as you also us th sam symbols for th variabls as w did in th lctur you will not hav to dfin ths any furthr. Qustion Sum Mark Points achivabl Points achivd

2 Univ.-Prof. Dr. J. Frank-Vibach 2 Problm 1: Intrnational Economic Rlations: Stocks and Flows a) W look at th prsntation of th BoP for th uro ara as a tabl: Account bn, Balanc of Forign Trad 2. Balanc of Trad in Srvics 3. Balanc of Incom Paymnts (Primary Incom) 4. Balanc of Currnt Unilatral Transfrs (Scondary Incom) 5. Capital Account 6. Commrcial Financial Account 7. Official Sttlmnts Balanc Plas mak th book-ntris for th following transactions in th tabl abov. For ach transaction, plas - ntr th numbr of th transaction (. g. (2) for transaction (2) blow) - dnot a dbit ntry by a minus (-); dnot a crdit ntry by a plus (+) or lav out th sign - ntr th numrical valu of th ntris [8 points] (1) A Grman company imports intrmdiat goods from th USA in th amount of 100 uros. Th company pays from its bank account at a Nw York bank so that th positiv balanc of th account is rducd. (2) A profssor of conomics from th Univrsity of Sign givs a cours in Romania. H gts a wag incom in th amount of 20 uros. H immdiatly spnds this mony for a holiday in Romania. (3) Th Grman govrnmnt waivs dbt to Grc in th amount of 50 uros (i.. Grc dos not hav to pay back this mony).

3 Univ.-Prof. Dr. J. Frank-Vibach 3 (4) A Frnch invstor buys a company in China at a pric of 40 uros. In ordr to financ th purchas, h taks a crdit from a Chins bank. Account bn, Balanc of Forign Trad (1) -100 (1) 2. Balanc of Trad in Srvics (2) -20 (1) 3. Balanc of incom paymnts (2) 20 (1) (primary incom) 4. Balanc of Currnt Unilatral Transfrs (Scondary Incom) 5. Capital Account (3) 50 (1) 6. Commrcial Financial Account (1) 100 (1) (3) 50 (1) (4) 40 (1) (4) 40 (1) 7. Official Sttlmnts Balanc b) Plas giv th valus of th following balancs. [4 points] b 1 Trad balanc (TB) b 2 Balanc on currnt account (CA) b 3 Nt lnding (NL) b 4 Official sttlmnt balanc (OSB)

4 Univ.-Prof. Dr. J. Frank-Vibach 4 b 1 Trad balanc (TB) (1) b 2 Balanc on currnt account (CA) (1) b 3 Nt lnding (NL) -150 (1) b 4 Official sttlmnt balanc (OSB) 0 (1) c) Plas intrprt nt lnding (NL) in gnral trms. [2.5 points] Transactions-inducd chang of nt claims against forignrs (0.5) (0.5) (0.5) (0.5) (0.5)

5 Univ.-Prof. Dr. J. Frank-Vibach 5 Problm 2: Causs and Consquncs of Intrnational Trad W considr a small country. Point A of th following graph shows its situation in autarky. C 1, X 1 A tan α = (p 2 /p 1 ) a 0 α C 2, X 2 a) Th autarky situation can b dscribd in mathmatical trms by four quilibrium conditions. Two of ths ar th following ons: (I) d X d X 1 2 MRT = p p 2 1 (II) X 1 = C 1 a 1 Plas brifly intrprt ths two quations. [6.5 points] (I) : (II) : (I): cost in production qual to cost in th markt (0.5) (1) (0.5) (0.5) (1) Or: opportunity cost of an additional unit of good 2 in production quals its pric in th markt (II): supply of good 1 qual to dmand (1) (0.5) (0.5) (1)

6 Univ.-Prof. Dr. J. Frank-Vibach 6 a 2 Plas writ down in mathmatical trms th missing two quilibrium conditions. [3 points] (1) (0.5) (0.5) MRS dc1 p2 dc 2 = p 1 b) Now, th conomy opns for trad. X 2 = C 2 (0.5) (0.5) b 1 How must w chang th abov st of four quilibrium conditions? [3 points] Markt claring conditions rplacd by th balancd-trad condition. (1) (1) (1) b 2 In th world markt, th pric ratio (p 2 /p 1 ) W is highr than th domstic pric ratio in autarky (p 2 /p 1 ) a. Plas visualiz th opn-conomy quilibrium of th domstic conomy in th graph abov: - draw th nw pric lin - indicat th nw production by point X - draw an indiffrnc curv and indicat th nw consumption by point D. [8 points] C 1, X 1 (2) stpr pric lin D (2) A (2) indiffrnc curv (2) X 0 α C 2, X 2

7 Univ.-Prof. Dr. J. Frank-Vibach 7 Problm 3: Forx Markt Th following diagram dpicts th markt for forign xchang. Th forign currncy that is tradd on th markt is th Unitd Stats dollar. $ D [$] a) In th diagram, dsignat th forign currncy dmand schdul with D d and th forign currncy supply curv with D s. [2 points] d $ D (1 ) D s (1) (1) * (1) A (1.5) ACHTUNG: dis (2 ) B horizontal ist nicht nötig 0 * D D 1 D [$] (1 ) (2 )

8 Univ.-Prof. Dr. J. Frank-Vibach 8 b) Assum w hav a systm of flxibl xchang rats. b 1 Dsignat th point of quilibrium in th two-dimnsional spac as point A. [1 point] b 2 On th axs of th diagram, dpict th quilibrating xchang rat as * and th amount of tradd forign currncy as D*. [2 points] c) Lt us now assum a systm with a fixd xchang rat. c 1 Plas nam th two constituting lmnts of this sort of systm vry brifly. [3 points] Targt valu (or: govrnmnt-mandatd official xchang rat) (1.5) Intrvntions (1.5) c 2 Suppos that at th givn fixd xchang rat thr is an xcss dmand for forign currncy. Dpict this situation in th diagram abov by drawing on th vrtical axis a corrsponding xchang rat. Mark as B th point in th twodimnsional spac that rprsnts th amount of tradd forign currncy at th givn xchang rat. Also mark th amount of tradd forign currncy on th horizontal axis as D 1. [5.5 points] d) Nam two sourcs of dmand for forign xchang. [2 points] Import of goods and srvics (1) Outflow of capital (1) ) Nam two functions of th forign xchang markt. [3 points] - xchang function (1.5) - pricing function (1.5) - Matching supply and dmand (1.5) Maximum 3 points!

9 Univ.-Prof. Dr. J. Frank-Vibach 9 Problm 4: Intrnational Parity Rlations W ar givn th following approximat vrsions of intrnational parity rlations: (I) i f i = d (II) d = dp P d f P f P Plas giv th nam and a carful intrprtation of on of ths rlations. [6.5 points] (I) nam: uncovrd intrst rat parity (0.5) (1) intrprtation: intrst rat diffrntial qual to xpctd prcntag chang of spot xchang rat (0.5) (1) (0.5) (0.5) (0.5) (1) (0.5) (0.5) (II) nam: xpctd PPP (0.5) (1) intrprtation: inflation diffrntial qual to xpctd prcntag chang of spot xchang rat (0.5) (1) (0.5) (0.5) (0.5) (1) (0.5) (0.5) Maximum 6.5 points!