cfa 一级试题共18部分六 investment tools economics global economic analysis_removed_W

1、六、 Investment Tools: Economics: Global Economic Analysis1. A: Gaining from International Tradea: State the conditions under whicha nation can gain from international trade.Comparative advantage is the ability to produce a good at a lower opportunity cost than others can produce it. Relative cost det

2、ermines comparative advantage. When trading partners specialize in producing products for which they have comparative advantage, costs are minimized, output is greater, and both trading partners benefit.Absolute advantage is a situation in which a nation, as the result of its previous experience or

3、natural endowments, can produce more output with the same resources than another nation.Note the difference: Absolute advantage refers to using the fewest resources to produce a product. Comparative advantage refers to the lowest opportunity cost to produce a product.According to the law of comparat

4、ive advantage, trading partners are both better off if they specialize in the production of goods for which they are the low-opportunity cost producer and trade for those goods for which they are the high-opportunity cost producer.How trade expands consumption possibilities: A country gains from int

5、ernational trade when it exports those goods for which it has a comparative advantage and imports those goods for which it does not. To see this more clearly, suppose that we can produce wheat at$2 per bushel. If the production cost is $3 in all other nations, it is to our advantage to produce more

6、wheat and sell it on the world market.Additional considerations on international trade:1. It allows firms to realize economies of scale.2. It benefits domestic consumers by allowing them to purchase from large scale producers abroad.3. It promotes competition and allows consumers to purchase a wider

7、 variety of goods.b: Discuss the effects of international trade on domestic supply and demand.Assume the U.S. has a comparative advantage in the production of Product L. The following graph indicates that when the world price is allowed to prevail in the domestic market, the price and quantity suppl

8、ied of Product L are both higher. As a result, domestic consumers are losers because of the higher price they must pay, and domestic producers are winners because of the higher price they receive and higher quantity they sell. However there is a secondary effect. To buy Product L from the U.S., fore

9、ign consumers must generate U.S. dollars. To do this, foreigners will export goods to the U.S. for which they have a competitive advantage. These goods are cheaper for U.S. consumers, which benefits the U.S. consumers at the expense ofU.S. producers of those products. The net result is a benefit to

10、the U.S. and world economies.c: Explain why nations adopt trade restrictions.Some reasons given for trade restrictions have some or partial validity:National defense argument: Some industries are highly sensitive to national security and should therefore remain in the country.Infant industries argum

11、ent: These industries should be protected for a time while they develop and reduce costs. One problem with this is that it is often hard to remove these tariffs.Anti-dumping argument: Tariffs are used to prohibit foreign firms from selling products in the country at below cost in an attempt to gain

12、market share.Other reasons for trade restrictions are of more questionable validity:Do trade barriers protect jobs? Part of the popularity of trade restrictions stems from their ability to protect easily identifiable jobs and the high wage levels in these jobs. But, in the long run, however, trade r

13、estrictions cannot protect the net number of jobs in the country.Do trade restrictions create jobs? In the short run maybe, but in the long run, No! Trade restrictions prevent your trading partners from developing the purchasing power needed to buy import goods from you, thus depressing your own exp

14、ort industry.Does trade with low-wage countries depress wage rates in high-wage countries? No! The belief that trading with low-wage countries depresses wages is based on a misunderstanding of the law of comparative advantage. A high hourly wage does not necessarily mean high per unit labor costs.d:

15、 Explain who derives benefits and losses from the imposition of a tariff.Tariffs benefit domestic producers of products because the level of imports will be reduced due to an effective increase in the price of the good. For example, if the world price of semiconductors is $40, and domestic producers

16、 can only profitably sell semiconductors at $45,foreign producers have a comparative advantage. Hence, domestic producers will not be able to compete in their own domestic semiconductor market. However, if the government places a$5 tariff on imported semiconductors, local producers will become compe

17、titive with foreign producers in the local market and local semiconductor production will rise. Tariffs will also benefit the government. They will collect the $5 tax on all foreign semiconductors sold in the domestic market.Even though the government collects tariffs and supposedly uses these funds

18、 to increase the welfare of its citizens, consumers in the country still lose. Because the demand curve is downward sloping, the loss in consumer surplus cannot be fully recovered by tax revenue.e: Discuss the validity of the arguments for trade restrictions.Some reasons given for trade restrictions

19、 have some or partial validity:National defense argument: Some industries are highly sensitive to national security and should therefore remain in the country.Infant industries argument: These industries should be protected for a time while they develop and reduce costs. One problem with this is tha

20、t it is often hard to remove these tariffs.Anti-dumping argument: Tariffs are used to prohibit foreign firms from selling products in the country at below cost in an attempt to gain market share.Other reasons for trade restrictions are of more questionable validity:Do trade barriers protect jobs? Pa

21、rt of the popularity of trade restrictions stems from their ability to protect easily identifiable jobs and the high wage levels in these jobs. But, in the long run, however, trade restrictions cannot protect the net number of jobs in the country.Do trade restrictions create jobs? In the short run m

22、aybe, but in the long run, No! Trade restriction prevent your trading partners from developing the purchasing power needed to buy import goods from you, thus depressing your own export industry.Does trade with low-wage countries depress wage rates in high-wage countries? No! The belief that trading

23、with low-wage countries depresses wages is based on a misunderstanding of the law of comparative advantage. A high hourly wage does not necessarily mean high per unit labor costs.1. B: International Finance and the Foreign Exchange Marketa: Explain how exchange rates are determined in a flexible or

24、floating exchange rate system.Exchange rates are determined by supply and demand. If there is an excess demand for dollars by Germans, Germans will sell marks and buy dollars - this will make the dollar appreciate relative to the mark. Intuitively, when would this happen? Germans would create an exc

25、ess demand for dollars if they desired to increase their imports of U.S. goods. In order tobuy U.S. goods, Germans need dollars - hence the price of the dollar rises relative to the mark.b: Describe the factors that cause a nations currency to appreciate or depriciate.Differential income frowth amon

26、g nations will cause those nations with the highest income growth to demand more imported goods. The heightened demand for imports will increase demand for foreign currency, appreciating the foreign currency and depreciating the domestic currency.Differential inflation rates will also cause a moveme

27、nt in exchange rates. If prices in the U.S. are rising twice as fast as in Germany, U.S. citizens will increase their demand for German goods (because German goods are now cheaper). This increased demand will appreciate the DM making German goods more expensive for Americans. Hence, adjustments in t

28、he exchange rate will offset the effects of the differential inflation rates.Differential interest rates will cause a flow of capital into those countries with the highest available real rates of interest. Therefore, there will be an increased demand for those currencies and they will appreciate rel

29、ative to countries whose available real rate of return is low.c: Explain the role of each component of the balance-of-payments accounts.Balance of payments accounting is a method used to keep track of transactions in the international sector. It includes government, consumer, and business transactio

30、ns. The BOP equation is:CURRENT ACC + CAPITAL ACC + OFFICIAL RESERVE ACCOUNT=0The current account measures the exchange of goods, services, investment income, and gifts to other nations.The capital account measures the flow of debt and equity investment funds into and out of the country.Official res

31、erve transactions are funds held at the International Monetary Fund (IMF) in the form of gold, other foreign currencies, and SDRs (special drawing rights at the International Monetary Fund). These reserve balances are used by the Fed to intervene in the foreign exchange markets in an attempt to loos

32、ely control exchange rates.d: Explain how monetary and fiscal policy affect the exchange rate and balance-of-payments components.Monetary policy and exchange rates - an unanticipated shift to an expansionary monetary policy will lead to more rapid economic growth, an acceleration in the inflation ra

33、te, and lowerreal interest rates. This stimulates imports, and increases the demand for foreign currencies relative to the dollar, causing the dollar to depreciate.Fiscal policy and exchange rates - an unanticipated shift to a more restrictive fiscal policy will result in budget surpluses. The reduc

34、ed aggregate demand causes an economic slowdown and lower inflation. These factors discourage imports and encourage exports, which results in a higher value of the dollar. However, budget surplus suggest that government borrowing declines, which reduces real rates, and as a result, depreciates the v

35、alue of the dollar. This is conflicting. But, we since financial capital is mobile, the effect of the interest rate change generally dominates in the short-run, leading to short-run devaluation.Monetary policy and the current account - an unanticipated shift to an expansionary monetary policy will l

36、ead to higher income, an accelerated inflation rate, and lower real interest rates. The higher income and prices stimulate imports and discourage exports, causing the current account balance to move toward deficit. The lower real interest rate discourages foreign and domestic investment at home, mov

37、ing the capital account toward deficit. At the same time, the value of the dollar declines because of the earlier shift to imports. Now, however, the lower dollar encourages exports and discourages imports. This more than offsets the movement toward deficit in the current account. Thus, the impact o

38、f an unanticipated shift to an expansionary monetary policy will be a shift toward a deficit in the capital account and a shift toward surplus in the current account.Fiscal policy and the current account - an unanticipated shift to a larger budget deficit will cause an increase in aggregate demand a

39、nd an increase in domestic interest rates. The increased aggregate demand encourages imports, which moves the current account towards deficit. Meanwhile, the higher interest rates attract foreign investment and discourage domestic investment from leaving the country. Thus, the capital account will m

40、ove toward surplus.e: Explain how current-account deficits affect an economy.Is a nations current account balance a good measure of its economic health? No. There is no law, economic or political, which states that the current account must be positive or zero.Running a deficit in the current account

41、 balance simply means a country imports more than it exports, and a country can do this for a long time. Countries that run current account deficits tend to run capital account surpluses so that they offset each other. An inflow of capital is not bad if it is being invested in such a way as to enhan

42、ce the productive capacity of the country. A current account surplus and capital account deficit are not an indication of economic strength, particularly if this occurs because there are few good investment opportunities in the country to attract investment and more attractive investment opportuniti

43、es abroad.f: Describe a fixed exchange rate and a pegged exchange rate system.Fixed rates, unified currency: Some countries fix their exchange rates to other currencies, such as the U.S. dollar, and sacrifice independent monetary policy. For example, Panama,Hong Kong, Argentina, and the U.S. have a

44、unified currency. The non-U.S. countries accomplish this through the use of a currency board, which has the power to create domestic currency only in exchange for a specific quantity of U.S. dollars they hold in bonds and other liquid assets. The currency board promises to redeem the domestic curren

45、cy at the fixed exchange rate into dollars. The EU has a similar system with the 11 countries that have joined the system using the Euro as the unified currency. The distinguishing characteristic of a fixed rate, unified currency system is the existence of only one central bank that can increase or

46、decrease the money supply. A country that imports more than it exports under this system will find a net decrease in the money supply, which should lead to downward pressure on prices. Lower prices should reverse the export-import relationship until the countrys exports begin to exceed its imports.P

47、egged exchange rates: This system involves a commitment of a country to use fiscal and monetary policy to maintain the countrys exchange rate within a narrow band relative to another (stronger) currency or to a bundle of currencies. This type of system requires a country to use its monetary policy t

48、o maintain the desired exchange rate.2: The Foreign Exchange Marketa: Distinguish between the spot and forward markets for foreign exchange.When currencies trade for immediate delivery (within 2 days of the trade) the transaction is said to take place in the spot market.In the forward market contrac

49、ts are made to buy or sell currencies for future delivery. Forward contracts are generally for 30, 90, 180, and 360 day periods. The major participants in the forward market are arbitrageurs, traders, hedgers, and speculators.b: Define direct and indirect methods of foreign exchange quotations.Inter

50、bank dealer quotes (here the traded currency is quoted against the U.S. dollar) can be stated in:American terms, which are dollars per foreign currency unit: $/FC. Generally just used for U.K. and Irish pounds.European terms, which are foreign currency units per dollar: FC/$. The traditional method

51、of quoting exchange rates.Local nonbank public customer quotes (here the home country currency is quoted against the traded currency) can be stated as:Direct quotes, which is domestic currency per foreign currency: DC/FC.Usually quoted per 100 FC units except for the $ and where it is one unit. This

52、 is the usual method of quoting currencies.Indirect quotes, which is foreign currency per domestic currency: FC/DC.This method is used in the U.K., Canada, and U.S. Heres some exam confusion for you! .555 DM / $ is a European terms quote in the interbank market. However, in the local market it is a

53、direct quote in Germany and an indirect quote in the U.S.c: Calculate the spread on a foreign currency quotation.Transactions costs: Banks generally do not charge commissions on foreign currency (FC) transactions. They make their profit off the bid-ask spread. The bid price is always listed first. I

54、t is the price the bank will pay for FC. The ask price is always listed second. It is the price the bank will sell FC for.Example: bid $1.6625/, ask $1.6635/ is listed at $1.662535 or just 2535.Note this quote is for British pounds so it is quoted in American terms. To switch the bid-ask spread to E

55、uropean terms (/$) you would just take the reciprocal of each number. 1/1.6625$/ = .6015 /$ and 1/1.6635 $/ = .60114 /$.Note the bid-ask spread just reversed to .60114.601515. Why? Here, the first bid-ask,$1.662535/, implies you were buying 1 for 1.6625 $s and selling 1 for 1.6635 $s. Now you are bu

56、ying 1$ for .60114s and selling 1$ for .6015s. You have switched your offering position from buying and selling pounds to buying and selling dollars.d: Explain how spreads on foreign currency quotations can differ as a result of market conditions, bank/dealer, positions, trading volume, and ( for fo

57、rward contracts) maturity/length of contract.The bid-ask spread is a function of the breadth (number of market participants) and depth (how much or volume of purchases) of the market for the currency as well as the currencys price volatility. The spread is stated as a percent of the asking price and

58、 appears below.% spread = (ask price - bid price) / ask price 100Example:The % spread is: (1.6635 - 1.6625) / 1.6635 100 = .06%The $ % spread is: (.6015 - .60114) / .6015 100 = .06%Hence, the percentage spread will be the same irrespective of how the quote is made. (Note that we needed to be careful and extend the significant digits to 5 when we inverted the $/ quote.)Please note the following features of spreads: The more widely the currency is traded (breadth and depth), the narrower the spread. The forward bid