What are the two extreme (relative) prices that are possible for trade in this situation and whom does each extreme favor?

1a. Total production for the two countries with no trade:

b. Total specialization:

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.

2. 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.

3. 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
4. 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
5. 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)