Bachelor Program Assessment Brief Academic Year 2021 BCO221 GLOBAL ECONOMICS Lecturers: Dr

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Bachelor Program Assessment Brief Academic Year 2021 BCO221 GLOBAL ECONOMICS Lecturers: Dr. Kattia Moreno ASSESSMENTS Global Economic course will assess students with: a FINAL EXAM: 60 % of final grade MID-TERM INSTRUCTIONS − Students have 3 hours to work on the exam. Please submit your solutions in a word document and write your name and the number of each question you solve. All submissions are via Turn-it-in. − All questions must be answered and provide calculations, justifications, and detailed analysis. − Be careful and meticulous explaining all mechanisms and effects in the money market and foreign exchange market. − All movements along curves and shifts of curves have to be explained and described. − In case of using academic sources, they have to be referenced using the Harvard Referencing Style. − Plagiarism is strictly penalized. SUBMISSION STYLE AND DEADLINE − The answers of your exam can be submitted in a Word document, Pdf or a picture of your handwriting solved exam. − If the handwriting can not be read, the answers can not be graded. − Deadline: Date: Mai, 6th 2021 - Timeframe: 12:00-15:00 (ECT) SPECIAL REQUIREMENT − In order to avoid academic dishonesty, a special requirement for this exam is to have your cameras turned on. TOPICS AND GRADING - Nominal and Real Exchange Rate: 25 points Relative Purchasing Power Parity: 27 points Output and the Exchange Rate: 28 points Short and Long run effects: 20 points Page | 1 Bachelor Program Assessment Brief Academic Year 2021 NOMINAL AND REAL EXCHANGE RATE 25 POINTS Two countries – India and China – are main rice exporters to the word. India is well known through its absolute abundance in the cultivation area, climate conditions and irrigation systems. These factors allowed the country to specialized on different rice sorts such as Basmati, Jasmin among other. With similar natural conditions, China stands as main competitor. China´s mayor absolute advantage is the side of cultivation area. In addition to that, both countries count on a significant domestic consume (see graph below) and profitable production´s levels. Nevertheless, the consume in China for the year 2020 forced the country to purchase rice from abroad. Graph 1: Rice Consumption Worldwide in 2020/2021, by country (in 1,000 metric tons) Source: https://www.statista.com/statistics/255971/top-countries-based-on-rice-consumption-2012-2013/ Year Production China India 01/2020 1 Ton 3,000 Chinese Yuan 7,580 Indian Rupee 02/2020 1 Ton 3,000 Chinese Yuan 7,580 Indian Rupee Nominal Exchange Rate ????????¥ ? ????????¥ Table 1: Production and Prices for China and India, 2020-2021 ? =11,40 = 11,43 Source: Statista and World Bank, 2021 Page | 2 Bachelor Program Assessment Brief Academic Year 2021 1. Calculate the depreciation or appreciation of the exchange rate = ????????¥ and interpret the result. ? (10 points) 2. On January 15th, 2020 a Chinese company plans to import 3,000 tons rice from India. Since the expected exchange rate ???????? ???????? will increase, advise the company on the right timing to buy, i.e., either in January or February 2020. In order to justify your advice, provide the calculation on the final amount to pay in ¥ for 3,000 tons rice. (5 points) 3. Explain the meaning of the effect on the currency for the Indian Rupee and the Chinese Yuan. Make a deep analysis about all macroeconomic factors that will be influenced. Consider that India and China are members of the BRICS and this can influence their business opportunities too. (10 points) Page | 3 Bachelor Program Assessment Brief Academic Year 2021 RELATIVE PURCHASING POWER PARITY 27 POINT The following graph gives information about the adjustments in price levels ($) and exchange rates (E) across the year 2020. Dates ????????$/€ P in $ 12/2020 1.4166 1,700 11/2020 1.4000 1,400 09/2020 1.0909 3/2020 1.0000 1,200 1,000 R 1. Prove mathematically if PPP holds during March and December 2020. The inflation rate for Germany in December 2020 was 0,22 and for the USA 0,35. (9 points) 2. Explain the results of Purchasing Power Parity. Consider in your answer the effects on the bilateral trading between the USA and Germany (9 points) 3. This scenario presents the increase of price levels for electronic devises in USA. After you have calculated PPP and you have analyzed the meaning, mention and explain the reasons for arbitrage in the calculation of PPP. (9 points) Page | 4 Bachelor Program Assessment Brief Academic Year 2021 OUTPUT (Y) AND THE EXCHANGE RATE (E) 28 POINT 1. Recognized the position of the “new” equilibrium in both asset markets. Explain the reason (there is only one) for holding equilibrium and the name of this parity. (5 points) 2. Explain the monetary process in the domestic and foreign market that puts both markets in the new equilibrium point. 3. Why is it important to rise the domestic output level in the money market? (10 points) (3 points) Page | 5 Bachelor Program Assessment Brief Academic Year 2021 4. If the output (Y) increases, what are the consequences on the demand of monetary assets? In order to support your answer, draw a graph of the asset market (AA Schedule) and mention the movements in the money market 5. Write the equilibrium formula for the money market and foreign exchange market (5 points) (5 points) Page | 6 Bachelor Program Assessment Brief Academic Year 2021 SHORT RUN AND LONG RUN EFFECTS 20 POINT 1,20 1,20 1 15 2 Mio 1. Explain the importance of an expected exchange rate and mention its value on the short run. (5 points) 2. Mentioned the consequences of the expected exchange rate in the short run and how does it affect the expected € deposits returns 3. What are the reasons and effects of the overshooting process in the long run? (5 points) (5 points) 4. How can the domestic money market go back to the original position in the long run (from 2 to point 4) ? (5 points) Page | 7 Bachelor Program Assessment Brief Academic Year 2021 SUBMISSION The work must be uploaded on a the appropriate Turnitin folder created by the course tutor on Moodle. The title of the file should contain the following information: Student Name – Student ID – Work Title Submission within two days after the deadline will be capped at 70%. Submission 2 days and more after the deadline will receive a zero (F). PROCEDURES Plagiarism Academic honesty is one of the guiding principles and this means that students need to acknowledge all their sources through correct citation and acknowledgment by using the Harvard Referencing System. Mitigating Circumstances In case the student cannot attend an assessment or submit it on time, the student can fill in at the office a mitigating circumstances document with a proof (medical or else) to receive a chance to submit or attend the exam at another date. Marking and Feedback Process Between you handing in your work and then receiving your feedback and marks, there are several quality assurances processes that we go through to ensure that students receive fair marks. The office will contact the students.