1a. Total production for the two countries with no trade:
Bicycles | Books | Total | |
---|---|---|---|
Canada | 5,600 | 600 | 6,200 |
Japan | 1,200 | 3,600 | 4,800 |
Total | 6,800 | 4,200 | 11,000 |
b. Total specialization:
Bicycles | Books | Total | |
---|---|---|---|
Canada | 8,000 | 0 | 8,000 |
Japan | 0 | 3,600 | 3,600 |
Total | 8,000 | 3,600 | 11,600 |
c. The two extreme relative prices that are possible for trade in this situation are:
- Canada exports bicycles at a rate of 8 bicycles for 1 book, and Japan exports books at a rate of 6 books for 1 bicycle. This favors Canada as they are able to export more of their good for the same amount of imported good.
- Canada exports bicycles at a rate of 2 books for 8 bicycles, and Japan exports books at a rate of 3 bicycles for 6 books. This favors Japan as they are able to export more of their good for the same amount of imported good.
- a. Total consolidated after tax earnings for the company is $3,800 + $3,600 + $18,750 = $26,150
b. If the U.S. dollar had depreciated by 10% over the year, the appropriate exchange rates would be: C$0.88/US$ JPY81.6/US$
c. The new after tax earnings for the company given the new exchange rates from part b. is $3,800 + $3,168 + $15,300 = $22,268
d. After tax earnings decreased by 15.2% due to the 10% depreciation of the U.S. dollar.
- a. Convert $1,250,000 into euros = $1,250,000 / 1.37 = €917,974 b. Convert £1,500,000 (GBP) into U.S. dollars = £1,500,000 / 1.65 = $909,091 c. Convert CAD 2,000,000 into JPY = CAD 2,000,000 / 0.0104 = JPY 192,307,692
- a. Convert $1,250,000 into euros = $1,250,000 * 1.07 = €1,342,500 b. Convert £1,500,000 (GBP) into U.S. dollars = £1,500,000 / 1.09 = $1,379,816 c. Convert CAD 2,000,000 into JPY = CAD 2,000,000 * 1.06 = JPY 2,120,000
- Forward premium/discount on the dollar = (0.81 – 0.73) / 0.73 = 10.95% (premium) Forward premium/discount on the euro = (1 – 0.81) / 1 = 0.19 (discount)