International Trade Lecture Notes PDF

11/23/2024 International Trade Exchange Rates, Practice Question Lecture 2 of 3 1 International Trade Exchange Rates, Practice Question Lecture 2 of 3 2 1 ...

11/23/2024 International Trade Exchange Rates, Practice Question Lecture 2 of 3 1 International Trade Exchange Rates, Practice Question Lecture 2 of 3 2 1  11/23/2024 INTL TRADE – NO TRADE, FREE TRADE, TARIFFS P P1, Q1 = NO TRADE Q1 = DOMESTIC PRODUCTION S1 P2, Q2 = FREE TRADE S2 = KINKED SUPPLY CURVE Q3 = DOMESTIC PRODUCTION Q2-Q3 = IMPORTS Q2 > Q1 = MORE PRODUCT! P1=$15 P3=$10 S3 P2=$8 S2 P3, Q4 = TARIFF ($2) S3 = KINKED SUPPLY CURVE Q5 = DOMESTIC PRODUCTION D1 Q4-Q5 = IMPORTS LOWER QTY, HIGHER PRICE Q3 Q5 Q1 Q4 Q2 Q 3 INTL TRADE – NO TRADE, FREE TRADE, TARIFFS P P1, Q1 = NO TRADE Q1 = DOMESTIC PRODUCTION S1 P2, Q2 = FREE TRADE S2 = KINKED SUPPLY CURVE Q3 = DOMESTIC PRODUCTION Q2-Q3 = IMPORTS Q2 > Q1 = MORE PRODUCT! P1=$15 P3=$10 S3 P2=$8 S2 P3, Q4 = TARIFF ($2) S3 = KINKED SUPPLY CURVE Q5 = DOMESTIC PRODUCTION D1 Q4-Q5 = IMPORTS LOWER QTY, HIGHER PRICE Q3 Q5 Q1 Q4 Q2 Q 4 2  11/23/2024 When a Tariff is added, who is hurt / helped? – Consumer HURT – Domestic Producer HELPED – Government HELPED (Tariff Revenue) 5 If a tariff is added to all cars imported from Japan, what happens to demand for American-made automobile? – Increased demand for American-made Price of Competing Good has Increased Think about the Graph 6 3  11/23/2024 If Japanese automobiles become increasingly popular, what happens in the foreign exchange market for Yen relative to the Dollar. Yen appreciates in value vs. the Dollar, demand for Yen shifts to the right. 7 Currency Question – Norwegian Kroner Thurs – US$ per KR =.1752 Fri – US$ per KR =.1851 What happened? (see visual…) 8 4  11/23/2024 How much do we pay on Thursday for 10 Kroner? (Remember $0.1752 = 1KR) Does this guy look angry to you? 9 How much do we pay on Friday? ($0.1851 = 1KR) What happened? Kroner became more expensive. It appreciated relative to the $. Or, expressed differently, the $ depreciated relative to the KR. 10 5  11/23/2024 Currency Question – Norwegian Kroner Mon – KR per US$ = 5.85 Tues – KR per US$ = 5.92 What happened? US $ has appreciated relative to Kroner 11 Planning to buy a Volvo… (Sweden) 12 6  11/23/2024 Buy a Volvo… Assume the only deciding factor is COST! Price in Ft. Worth = $38,747 Price in Gothenburg, Sweden = Kr 248,701 Exchange Rate $1 = 6.22 Kr CALCULATE YOUR ANSWER…. Buy in Ft. Worth Kr 248,701 divided by 6.22 = $39,984 $38,747 x 6.22 = Kr 241,006 13 Foreign Exchange Quotes CLASS – No commentary on this one – just review and this will be the last slide. USD / CAD = 1.34 US = Base Currency – (Domestic current is on the left) Canadian = Quote Currency Translation… Direct Quote $1 = Can$ 1.34 Indirect Quote Can$1 = $0.74 14 7