国际经济学期末考试题库

InternationalEconomics,8e(Krugman)

Chapter21TheGlobalCapitalMarket:PerformanceandPolicyProblems

21.1TheInternationalCapitalMarketandtheGainsfromTrade

1)Ifyouareofferedagambleinwhichyouwin500dollars3/8ofthetimeandyoulose500dollars5/8ofthe

time,whatisyourexpectedpayoffandyourbehaviorgiventhatyouarearisk-lover?

A)$500,takethegamble

B)-$125,takethegamble

C)-$125,itisunclearwhatyouwoulddowithoutfurtherinformation

D)$500,declinethegamble

E)-$125,declinethegamble

Answer:C

QuestionStatus:PreviousEdition

2)Thetwotypesoftrade,intertemporalandpureassetswapperfectsubstitutes,because:

A)are;theybothofferconsiderablepayoffandareequalinthelongrun.

B)are;theybothinvolvethesmoothingoutofnowandfutureconsumption.

C)arenot;assetswappingisimmediateandinvolvesonlyassets,whileintertamporaltradetakestwo

timeperiodsandinvolvesbothassetsandgoods/services.

D)couldpossiblybe;differenteconomicstatesoccuratdifferentpointsintime.

E)BandC.

Answer:D

QuestionStatus:PreviousEdition

3)Forthefollowingquestionassumethefollowingfacts:

(1)BalanceofPayments=0priortothetransactions.

(2)PersonA(wholivesintheUnitedStates)purchasesanairplanefromBritishAirwaysfor$150,000.

(3)PersonApayswithacheckfromhisaccountatFirstUnionBankintheUnitedStates.

(4)Britishairways,sinceitwillneeddollarsin1month,depositsthecheckattheBankofEngland.

(5)BankofEnglanddepositsthe$150,000atCommonwealthbank,whichislocatedintheUnitedStates.

Ductothetransactionsabove,whataretheeffectsonthebalanceofpayments?

A)-$150,000duetoimportofgood(currentaccountdebit)

B)+$150,000duetoimportofgood(currentaccountcredit)

C)-$150,000duetodepositofBankofEngland(capitalaccountdebit)

D)+$150,000duetodepositofBankofEngland(capitalaccountcredit)

E)Noeffect(150,000currentaccountdebitand150,000capitalaccountcredit)

Answer:E

QuestionStatus:PreviousEdition

4)Forthefollowingquestionsassumethefollowingfacts:

(1)BalanceofPayments=0priortothetransactions.

(2)PersonA(wholivesintheUnitedStates)purchasesanairplanefromBritishAirwaysfor$150,000.

(3)PersonApayswithacheckfromhisaccountatFirstUnionBankintheUnitedStates.

(4)Britishairways,sinceitwillneeddollarsin1month,depositsthecheckattheBankofEngland.

(5)BankofEnglanddepositstheSI50,000atCommonwealthbank,whichislocatedintheUnitedStates.

Duetothetransactionsabove,whataretheeffectsonthereserveattheFed?

A)Noeffectsatall.

B)Fact3isadecreaseof$150,000,fact5isanincreaseof$150,000,aneteffectof0.

C)Fact3isanincreaseof$150,000,fact5isadecreaseof$150,000,aneteffectof0.

D)Bothfact3andfact5resultinincreasesof$150,000,aneteffectof+$300,000.

E)Bothfact3andfact5resultindecreaseof$150,000,aneteffectof-$300,000.

Answer:B

QuestionStatus:PreviousEdition

5)Supposeoneisofferedagambleinwhichyouwin$1,000halfthetimebutlose$1,000halfthetime.Sincein

thiscaseoneisaslikelytowinastolosethe$1,000,theaveragepayoffonthisgamble-itsexpectedvalue-is:

0.5*$1,000+0.5*(-$1,000)=0.

Undersuchcircumstances:

A)noonewilltakethegamble.

B)riskaverseindividualswilltakethegamble.

C)riskloversindividualswilltakethegamble.

D)riskneutralindividualsmaytakethegamble.

E)CandD.

Answer:E

QuestionStatus:PreviousEdition

6)Formostpracticalmatters,economistsassumethat:

A)individualsareriskneutral.

B)individualsarerisklovers.

C)individualsareriskaverse.

D)mostindividualsarerisklovers.

E)mostindividualsareriskneutral.

Answer:C

QuestionStatus:PreviousEdition

7)Peoplewhoareriskaverse,

A)valueacollectionofassetsonlyonthebasisofitsexpectedretums.

B)valueacollectionofassetsonlyonthebasisoftheriskofthatreturn.

C)valueacollectionofassetsnotonlyonthebasisofitsexpectedretumsbutalsoonthebasisoftherisk

ofthatreturn.

D)noclearcutcriteriaexist.

E)Noneoftheabove.

Answer:C

QuestionStatus:PreviousEdition

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8)Theideaofriskaversion

A)isatoddswiththeideaofinsurance.

B)helpexplaintheprofitabilityofinsurancecompanies.

C)hasnothingtodowithinsurancecompanies.

D)helpexplainthelossessuffersbytheinsuranceindustry.

E)helpexplainwhyinsurancecompaniesinthelongrunarezeroprofitcompanies.

Answer:B

QuestionStatus:PreviousEdition

9)Riskaversepeople

A)willneverholdbondsdenominatedinseveraldifferentcurrenciesbecauseoftransactioncosts.

B)willalwaysholdbondsdenominatedinseveraldifferentcurrenciesbecauseoftransactioncosts.

C)mayholdbondsdenominatedinseveraldifferentcurrencies.

D)mayholdbondsdenominatedinseveraldifferentcurrenciesonlyifsatisfyingthewellknowninterest

partycondition.

E)willholdonlydomesticbondsbecauseofthehomebiaseffect.

Answer:C

QuestionStatus:PreviousEdition

ID)Imaginethattherearetwocountries,HomeandFarFarAway,andthatresidentsofeachownonlyoneasset,

domesticlandyieldinganannualharvestofmangoes.Assumethattheyieldonthelandisuncertain.Half

thetime,Home'slandyieldsaharvestof5,000tonsofmangoesatthesametimeasFarFarAway'sland

yieldsaharvestof2,500tons.Theotherhalfofthetimetheoutcomesarereversed.Theaverageforeach

countrymangoharvestis:

A)2500.

B)2750.

C)3500.

D)3750.

E)Notenoughinformationisgiven.

Answer:D

QuestionStatus:PreviousEdition

11)EquityInstrumentsinclude

A)stocks.

B)bonds.

C)banksdeposits.

D)AandBonly.

E)AandConly.

Answer:A

QuestionStatus:PreviousEdition

12)Whatwouldbestdescribethenationalcapitalmarkets?

A)Themarketofexchangeofbonds.

B)Themarketofexchangeofstocks.

C)Themarketofexchangeofreal-estate.

D)Themarketinwhichresidentsofdifferentcountriestradeassets.

E)Noneoftheabove.

Answer:D

QuestionStatus:PreviousEdition

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13)Describethreetypesofgainsfromtrades?

A)tradesofexchangeratesforgoodsorservices,tradesofgoodsorservicesforproperty,andtradesof

goldfortextiles

B)tradesofgoodsorservicesforgoodsorservices,tradesofgoodsorservicesforassets,ar.dtradesof

assetsforassets

C)tradesofimportsforexports,tradesofexportsforimports,andtradesofnaturalresourcesforfinancial

assets

D)Noneoftheabove.

E)Alloftheabove.

Answer:B

QuestionStatus:PreviousEdition

14)Assettradesthatdealwithdebtinstrumentsarebestdescribedas

A)shareofstock.

B)exchangerate.

C)bonds.

D)bankdeposits.

E)BothCandD.

Answer:E

QuestionStatus:PreviousEdition

15)Assettradesthatdealwithequityinstrumentsarebestdescribedas:

A)shareofstock.

B)exchangerate.

C)bonds.

D)bankdeposits.

E)BothCandD.

Answer:A

QuestionStatus:PreviousEdition

16)Theinternationalcapitalmarketis:

A)themarketinwhichresidentsofdifferentcountriestradeassets.

B)notreallyasinglemarket,butagroupofcloselyinterconnectedmarketsinwhichassetexchangeswith

someinternationaldimensiontakeplace.

C)themarketthatissubjecttointenseregulationandmustfileareporttotheBascicommitteeona

biannualbasis.

D)AandB.

E)A,B,andC.

Answer:D

QuestionStatus:New

17)Intertemporaltradeis

A)theexchangeofgoodsbutnotservicesforclaimstofuturegoods.

B)theexchangeofservicesbutnotgoodsforclaimstofutureservices.

C)theexchangeofgoodandservicesforclaimstofuturegoodsandservices.

D)Alloftheabove.

E)Noneoftheabove.

Answer:C

QuestionStatus:New

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18)Whatisthebasicmotiveforassettrade?

A)Increaseexpectedreturns

B)Reducerisk

C)Portfoliounification

D)Economicstability

E)AandB.

Answer:E

QuestionStatus:New

19)Usinginternationalassettrade,countriescan

A)neverreallyeliminateallrisk.

B)eliminateallrisk.

C)actuallyincreasetheirriskinsomecases.

D)eliminatealltheirriskexceptforemergingmarkets.

E)Noneoftheabove.

Answer:A

QuestionStatus:New

20)Whatarethethreetypesoftransactionsbetweentheresidentsofdifferentcountries?

Answer:Thethreetypesare:

(1)Tradesofgoodsandservicesforgoodsorservices

(2)Tradesofgoodsandservicesforassets,and

(3)Tradesofassetsforassets.

QuestionStatus:PreviousEdition

21)Whatarethethreetypesofgainsfrominternationaltransactionsbetweentheresidentsofdifferentcountries?

Answer:Thethreetypesare:

(1)Gainsduetocomparativeadvantageandeconomiesofscale.

(2)Gainsduetointer-temporaltrade,whichistheexchangeofgoodsandservicesforclaimstofuture

goodsandservices,whichisforassets.

(3)Gainsduetotradesofassetsforassets,suchastheexchangeofrealestatelocatedinLondonfor

U.S.Treasurybonds.

QuestionStatus:PreviousEdition

22)Howinternationaltradeinassetscanmakebothcountriesbetteroff?

Answer:Byallowingthemtoreducetheriskinessofthereturnontheirwealthandbyallowingthetwoparties

todiversifytheirportfolios,i.e.ztodividetheirwealthamongawiderspectrumofassets,andthus

reducetheamountofmoneyplacedononespecificasset.

QuestionStatus:PreviousEdition

23)ExplainTobin'sideaof"Don'tputallyoureggsinonebasket."

Answer:Tradeinassetscanmakebothpartiesbetteroffbyallowingthemtoreducetheriskinessofthereturn

ontheirwealth.Portfoliodiversificationoccurswhenthewealthisdividedamongawidespectrumof

assets,sotheamountofmoneyridingoneachindividualassetisreduced.Obviously,this

diversificationneedstobecontrastedagainsttheexpectedreturnsofthenewassetsthatyouare

acquiring

QuestionStatus:PreviousEdition

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24)Whyisitusefultomakeadistinctionbetweendebtandequityinstruments?

Answer:Debtinstrumentssuchasbondsandbankdepositsarerepaidregardlessofeconomiccircumstances.

Equityinstruments,likeashareofstock,haveapayoffthatislinkedtoeconomicperformances.

However,rememberthepossibilityofbankruptcyandtherealreturn,whichissubjecttodomestic

currencyfluctuations.

QuestionStatus:PreviousEdition

25)Defineriskaversionandgiveanexampleofarisk-averseperson?

Answer:Riskaversionisacharacteristicofapersonthatdislikesrisk.Anexampleofthisissomeonewhotakes

outrentalorhomeinsurancetoreducetheriskofsomekindofcatastrophefromhappening.

QuestionStatus:PreviousEdition

26)Whyisportfoliodiversificationsoimportantininternationaltrade?

Answer:Portfoliodiversificationisimportantininternationaltradebecausepartiesofthetradearebetteroffby

allowingthemselvestoreducetheriskofthereturnontheirwealth.Traderscandividetheirwealth

amongwideramountsofassetsinturnreducingtheamountofmoneytheyhaveridingoneach

individualasset.

QuestionStatus:PreviousEdition

27)Whatisthedifferencebetweenequityinstrumentsanddebtinstruments?

Answer:Equityinstrumentsareshareofstocks.Itisdefinedasaclaimtothefirm'sprofit.Debtinstrumentare

bondsandbankdeposits.Theyspecifythattheissueroftheinstrumentmustrepayafixedvalue.

QuestionStatus:PreviousEdition

28)Whyistheforeignexchangemarketsovital?

Answer:Theforeignexchangemarketisthecentralcomponentoftheinternationalcapitalmarket.The

exchangeratesitsetshelpdeterminetheprofitabilityofinternationaltransactionsofalltype.The

exchangeratesshowvaluableeconomicsignalstohouseholdsandfirmsinvolvedininternational

tradeandinvestment.

QuestionStatus:PreviousEdition

29)Supposeyouareofferedagambleinwhichyouwin$1,000halfthetimebutlose$1,000halfthetime.Ifyou

areriskaverterwillyoutakethegamble?

Answer:Sinceyouareaslikelytowinastolosethe$1,000,theaveragepayoffonthisgambleitsexpected

valueis:

0.5*$1,000+0.5*(-$1,000)=0.Ifyouareriskaverse,youwillnottakethegamblebecause,foryou,

thepossibilityoflosing$1000outweighsthepossibilitythatyouwillwin,althoughbothoutcomesare

equallylikely.

QuestionStatus:PreviousEdition

30)Supposeyouareofferedagambleinwhichyouwin$1,0001/3halfthetimebutlose58002/3halfthetime.If

youareriskloverwillyoutakethegamble?Whatwillyourexpectedpayoffbe?

Answer:Theexpectedpayoffwouldbe:

1/3(+$1,000)+2/3(-$800)=-$200.

Fromthiscalculation,weknowthatrisk-neutralindividualswouldnottakethegamble,butitisnot

clearwhatarisk-lov:ngindividualwoulddo.

QuestionStatus:PreviousEdition

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31)Calculatetheexpectedpayoffforthefollowingcases,whereqlandq2aretheprobabilitiesofstate1and2,

respectively.

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.50.51,000-1000

0.50.5200-200

0.50.5300-100

0.60.41,000-100()

Answer:____________________________________________________________

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.50.51,000-10000

0.5().5200-2000

0.50.5300-10()10()

0.60.41,00()-1000200

QuestionStatus:PreviousEdition

32)Calculatetheexpectedpayoffforthefollowingcases,whereqlandq2aretheprobabilitiesofstate1and2,

respectively.

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.40.680()-600

0.550.45600-800

0.60.41200-1400

0.550.451200-1400

Answer:

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.40.6800-600-40

0.550.45600-800-30

0.60.41200-1400160

0.550.451200-140030

QuestionStatus:PreviousEdition

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33)Completethefollowingtable.

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.5().51,00()0

0.50.52000

0.5().5-100100

0.60.4-1000200

0.7110010001070

0.31200-100290

0.9130()-10040

0.41400-10()500

Answer•

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.50.51,000-10000

0.50.5200-2000

0.50.5300-10()10()

0.60.41,000-100()200

0.7()31100100()1070

()30.71200-10()290

().10.91300-10()40

0.40.61400-10()500

QuestionStatus:PreviousEdition

34)Completethefollowingtable.

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.70.321000

0.30.7-49000

0.40.6-10()10()

0.60.4500200

().80.2-100()0

0.2().81200-10()

().10.9-10()40

0.9().11400500

Answer:__________________________________________________________________

qiq2PayoffifState1PayoffisState2ExpectedPayoff

0.70.32,100-490()0

0.30.7420-18()0

0.40.6400-10()10()

0.60.4500-250200

().80.2250100()0

0.2().81200-10()160

().10.91300-10040

0.9().114007600500

QuestionStatus:PreviousEdition

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Thefollowingsimpletwo-countryquestionillustrateshowcountriesaremadebetteroffbytradeinassets.Imaginethat

therearetwocountries,HomeandForeign,andthatresidentsofeachownonlyoneasset,domesticlandyieldingan

annualharvestofkiwifruit.Assumethattheyieldonthelandisuncertain.Halfthetime,Home'slandyieldsaharvestof

100tonsofkiwifruitatthesametimeasForeign'slandyieldsaharvestof50tons.Theotherhalfofthetimetheoutcomes

arereversed.TheForeign'sharvestis100tons,buttheHomeharvestisonly50.

35)Calculatetheaverage,foreachcountryofkiwiharvest.

Answer:Theaverageforeachcountryofkiwiharvestis:0.5*100+0.5*50=75tonsofkiwifruit.However,

notethattheinhabitantsofthetwocountriesneverknowinadvancewhetherthenextyearwillbring

feastorfamine.

QuestionStatus:PreviousEdition

36)Supposethetwocountriescantradesharesintheownershipoftheirperspectiveassets.Further,assumethat

aHomeownerofa10percentsharemForeignland.Hewillreceive10percentsharemForeignland,and

thusreceives10percentoftheannualForeignkiwifruitharvest.FurtherassumethataForeignownerofa10

percentshareinHomelandispermitted.Inthiscase,aForeignerisentitledto10percentoftheHome

harvest.Calculatetheexpectedvalueofkiwifruitforeachinvestor.Istheinvestorbetteroff?

Answer:GoodyearatHome:thefarmerwillget90tomsofkiwifromhomeand5tonsofkiwifromForeign.

Badyearsathome:hewillget45tonsofkiwifromhisHomeand10tonsfromtheForeigncountry,

namely55tons.Theprobabilityforagoodorabadyearis0.5.Thustheexpectedreturnswillnowbe:

0.5*95+0.5*55=75

Itisnotclearwhethertheinvestorisbetteroffornot.Ifhelikestosmoothhisconsumption,hemaybe

betteroff.Otherwise,itisimpossibletotellwithoutaparticularutilityfunction.

QuestionStatus:New

37)Supposethetwocountriescantradesharesintheownershipoftheirperspectiveassets.Furtherassumethat

aHomeownerofa25percentshareinForeignland.Hewillreceive25percentshareinForeignlandand

thusreceives25percentoftheannualForeignkiwifruitharvest.FurtherassumethatalsothataForeign

ownerofa25percentshareinHomelandispermitted.Inthiscase,aForeignerisentitledto25percentof

theHomeharvest.Calculatetheexpectedvalueofkiwifruitforeachinvestor.

Answer:GoodyearatHome:75+12.5=87.5tonswithprobability0.5

BadyearatHome:37.5fromHomeand25fromForeign=62.5withprobability0.5.

Theexpectedreturnis:0.5*87.5+0.5*62.5=75.

QuestionStatus:New

38)Supposethetwocountriescantradesharesintheownershipoftheirperspectiveassetswithoutany

restrictions.Assumethattheconsumersinbothcountrieswouldliketototallysmooththeirconsumption.

Describetheoutcomes.

Answer:Inthiscase,Homeresidentswillbuya50percentshareofthelandinForeign,andtheywillpayforit

bygivingForeignresidentsa50percentshareinHomeland.Explainwhy.Tounderstandwhy,think

aboutthereturnsto:heHomeandForeignportfolioswhenbothareequallydividedbetweentitlesto

HomeandForeignland.WhentimesaregoodatHome(andthereforebadinForeign),eachcountry

earnsthesamereturnharvest,whichis75everyyearwithcertainty.

HalfoftheHomeharvest(100tonofkiwifruit)plushalfoftheForeignharvest(50tonsofkiwifruit)

or75tonsoffruit.

0.5*100+0.5*500=75.

Intheoppositecase-badtimesinHome,goodtimeinForeign-eachcountrystillearns75tonsoffruit.

Thus,wehaveshownthatifthecountriesholdportfoliosequallydividedbetweenthetwoassets,each

countryeamsacertainreturnof75tonsofkiwifruit.Thiscertainreturnisexactlythesameasthe

averageharvesteachfacedbeforeinternationalassettradewasallowed.Thistradecompletely

eliminatestheriskfacedbybothcountrieswithoutchangingaveragereturns.Assumingrisk-averse

individualsinbothcountries,thetwocountriesarebetteroffasaresultofassettrade.

QuestionStatus:New

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39)Supposethattradeinassetisnotallowedbutthetwocountriessignatreatythatguaranteethesendingof25

tonsofkiwiingoodtimebythehighoutputcountryinthatseason.Whatwilltheoutcomeofsuchatreaty?

Explainwhy.

Answer:TheoutcomeswillbeexactlythesameasinCaseDabove.Inotherwords,ratherthansigningatreaty,

justleavingthefinar.cialmarketstofunctionwillleadustothedesirableresults.

QuestionStatus:New

40)Calculatetheexpectedpayoffforthefollowingcaseswiththeformula:(Pl)*(payoffifstate1)+(P2)

(payoffifstate2)zwherePlandP2aretheprobabilitiesofstate1and2,respectively.

PayoffifPayoffis

State1State1Expected

PlP2OccursOccursPayoff

0.50.55,000-1000

0.750.25250()-2500

0.50.58()-10()

0.250.751,000-100()

10100-10()

0.50.52500-2500

Answer:

PayoffifPayoffis

State1State1Expected

PlP2OccursOccursPayoff

0.50.55/p>

0.750.252500-25001250

0.50.580-100-10

0.250.751,00()-100()-500

1010()-10()10()

0.50.52500-250(10

QuestionStatus:PreviousEdition

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41)Completethefollowingtablewiththeformula(Pl)*(payoffifstate1)+(P2)*(payoffifstate2),wherePl

andP2aretheprobabilitiesofstate1and2,respectively.

PayoffifPayoffis

State1State1Expected

PlP2OccursOccursPayoff

0.50.5250150

0.450.4510000-25003375

0.50.5800799799.5

0.250.75-50.4

0.40.6175150160

030.7600950845

Answer:

PayoffifPayoffis

State1State1Expected

PlP2OccursOccursPayoff