International Economics and Policy
Part –A

1.    Describe the concepts, nature & scope and considerations of international economics. 
    

2.    Explain the theories of international trade in detail.     

    
Qus.3. Define the Heckscher-Ohlin model and Samuelson models of international trade. 

    
4.    Explain the various terms of trade with an example.     

6.    What are balance of trade and balance of payment? What are the various difference between the two?     

8.    Describe the working of the IMF and World Bank in detail.     

Part –B

 Case Detail :  
JPMorgan Chase lost at least 3.5% as all 27 companies in the S&P 500 Diversified Financial Index declined.
“This gave the politicians everything they need to push for stronger financial reform and it’s going to further shake investor confidence in Wall Street,” said Matthew McCormick, a banking-industry analyst and portfolio manager at Bahl& Gaynor in Cincinnati, which oversees $2.8 billion.
Goldman Sachs spokesman Lucas Van Praag didn’t return a call and an e-mail seeking comment. A call to Richard Klapper, an attorney for Goldman Sachs at Sullivan & Cromwell, wasn’t returned. Tourre, reached by phone in London on Friday, declined to comment. A call to Pamela Chepiga, a lawyer for Tourre at Allen &Overy, wasn’t returned.
Stefan Prelog, a spokesman for New York-based Paulson, said he couldn’t comment. The company oversees $32 billion.

Please give your answer in at least 25 words and press save and continue button.

S. No.     Questions     Marks - 10 

1.     What was the problem with Goldman Sachs? 

2.     How this problem could have been solved?

3.     Explain the scam or fraud discussed in the above case study in your own words. 

Part –C

Question No.  1      
________________________________________
International monetary system refers to the rules and procedures by which different national currencies are exchanged for each other in -     
  
Options     
    
•    World Trade 

•    Global Trade 

•    World Economy 

•    Global Economy 

Question No.  2      
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A topic that encompasses a wide range of issues—reserve currencies, exchange rates, capital flows, and the global financial safety net, to name a few, is the -
      
Options     
    
•    International Monetary Fund

•    International onetary System 

•    International Trade

•    Foreign Exchange Systems
    
Question No.  3      
________________________________________
The IMF came into existence in December 1945, and it announced its readiness to commence exchange transactions in -
  
Options     
    
•    1947, January

•    1947, February

•    1947, March

•    1947, April
    
Question No.  4      
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The main purposes for which the IMF was set up were to provide exchange stability, temporary assistance to countries falling short of foreign exchange and international sponsoring of measure for curing the fundamental causes of disequilibrium in -
      
Options     
 
•    Balance of Foreign Exchange

•    Balance of Exchange Rate

•    Balance of Trade

•    Balance of Payments
      
Question No.  5      
________________________________________
The functions of the International Monetary Fund include all of the following except -
      
Options     
    
•    To provide emergency loans to countries facing balance of payments problems.

•    To monitor macroeconomic developments continuously in member countries.

•    To serve as the world central bank.

•    To provide a line of credit for each member country.
      
Question No.  6      
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Under the international monetary system as it actually operated between 1947 and 1971, the emergence of seemingly-chronic deficits and surpluses in various countries' balance of payments position (i.e. deficits and surpluses which did not seem to get eliminated) was called -
      
  
Options     
    
•    The Liquidity Problem

•    The Confidence Problem

•    The Adjustment Problem

•    The IMF Problem
    
Question No.  7      
________________________________________
In its lending to member countries, the International Monetary Fund (IMF):
      
Options     
    
•    Concentrates its lending on long-term development loans and does not engage in short-term balance of payments loans.

•    Can lend to a country, at a maximum, only 25% of the value of that country's "quota" in the IMF.

•    Lends whatever amounts member countries may wish to borrow, and at zero interest rate and no service charge on all loans.

•    May increase the difficulty of obtaining loans and may insist on internal policy changes by borrowing countries as the borrowers ask for additional loans.
      
Question No.  8      
________________________________________
In the current exchange rate arrangements of IMF members:
      
  
Options     

•    Most countries do not have a freely floating exchange rate.

•    The EU countries fix their exchange rate against US dollar.

•    No countries are tied or pegged to the US dollar.

•    The US dollar is the only currency which is floating.
      
Question No.  9      
________________________________________
Under the Bretton Woods system set up at the end of WWII, exchange rates were -
      
Options     
    
•    Absolutely fixed, i.e. no deviations from parity were permitted.

•    Permitted to vary 1% above or below parity.

•    Permitted to vary 2.25% above or below parity.

•    Completely flexible, i.e. continuous rate changes of any magnitude were permitted.
    
Question No.  10      
________________________________________
The post-Bretton-Woods international monetary system is generally thought to have been characterized by all except one of the following features. Which one does not seem to have been a characteristic of the system?
      
  
Options     
    
•    There has been substantial variability in the nominal exchange rates of developed countries, and this variability has included the phenomenon of "overshooting".

•    Real exchange rates have been relatively constant during the period, and so the existence of the system per se has not had real economic effects.

•    Countries with basically floating rates have not been completely insulated from outside economic disturbances.

•    The size of international reserves held by central banks has increased substantially during the period.
      

Question No.  11      
________________________________________
Under the Bretton-Woods agreement -
      
  
Options     

•    Countries were to permit absolutely no variation in exchange rates.

•    Gold was demonetized as an international reserve assets.

•    The IMF was primarily to engage itself in long-term development loans.

•    A country joining the IMF was assigned a quota to be paid in gold and the country's own currency.
      
Question No.  12      
________________________________________
In the current international monetary system, all countries -
  
Options     
    
•    Must keep their currency values absolutely fixed.

•    Must keep their currency values fixed within a certain small deviation from par values.

•    Must adopt floating exchange rates.

•    Can choose whatever exchange rate arrangements they wish.
      

Question No.  13      
________________________________________
An attribute that doesn’t contribute to Porters Diamond model is -
      
Options     
    
•    Government

•    Organized Trade union

•    Factor Conditions

•    Demand Conditions
    
Question No.  14      
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The theory states that, lack of resources often helps countries to become competitive, is the -
      
Options     
    
•    Competitive Theory

•    Porters Diamond Model

•    Theory of Mercantilism

•    Product life cycle theory
    
Question No.  15      
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Theory of Mercantilism propagates -
      
Options     
    
•    Encourage exports and imports

•    Encourage exports and discourage imports

•    Discourage exports and imports

•    Discourage exports and encourage imports
    
Question No.  16      
________________________________________
Credits transferable by original beneficiary in favor of secondary beneficiary are known as -
      
Options     
    
•    Deferred Credits

•    Transit Credits 

•    Installment Credits

•    Transferable Credits
    
Question No.  17      
________________________________________
When the exporter, expects the importer, to make the payment immediately upon the draft being presented to him is called as -
      
Options     
    
•    Sight Draft

•    Usance Draft

•    Demand Draft

•    Pay Note
    
Question No.  18      
________________________________________
The basic objective of export Promotion Council is to promote and develop the Exports of the -
      
Options     

•    Particular products of country

•    Only attractive projects of the country

•    Only services industry products of the country.

•    Overall exports of the country.
    
Question No.  19      
________________________________________
General Agreement on Trade in Services will not be applicable to -
      
Options     
    
•    Services supplied from one country to another – cross border supply

•    Transaction of goods across the border – Export Import

•    Individuals traveling from own country to supply services in another – presence of natural persons.

•    Consumers/firms making use of a service in another country – consumption abroad.
      
Question No.  20      
________________________________________
As a part of WTO guidelines, Agreement on Agriculture (AOA) doesn’t consider -
      
Options     
    
•    Direct payments to farmers are permitted.

•    Indirect assistance and support to farmers including R & D support by govt. are not permitted. 

•    Domestic policies which directly effect on production and trade have to be cut back.

•    Least developed countries do not need to make any cuts.
      
Question No.  21      
________________________________________
Paul Krugman is credited with the —
      
Options     
    
•    New Trade Theory

•    Factor Proportions Theory

•    Law of Factor Price Equalization

•    Product Life Cycle Theory
    
Question No.  22      
________________________________________
Which of the following observations about a tariff is not true? A tariff:
      
Options     

•    Is usually an ad valorem tax.

•    Can raise revenues for the imposing government.

•    Usually benefits domestic producers more than consumers.

•    Can be used to protect foreign industries.
      
Question No.  23      
________________________________________
Which of the following is not recorded as a debit item in the U.S. balance-of-payments accounts?
      
Options     
•    A U.S. grain company engages Russian ships to carry U.S. wheat to Russian ports.

•    The U.S. Treasury contributes $1 million to the United Nations Development Fund.

•    A French firm sells 25-year bonds, valued at $100 million, in the United States

•    A West German firm pays $3 million in interest to the holders of its bonds in the US.
      
Question No.  24      
________________________________________
Which of the following is true with respect to the infant industry argument for protection?
      
Options     

•    It does not refer to temporary protection to establish a domestic industry.

•    To be valid, the return to the grown-up industry need not be sufficiently high to repay for the higher prices paid by domestic consumers of the commodity during the infancy period.

•    It is inferior to an equivalent production subsidy to the infant industry.

•    None of the above
    
Question No.  25      
________________________________________
The nationally optimal tariff hopes to take advantage of the idea that -
      
Options     
    
•    You can increase domestic producers’ well-being by keeping foreign competition minimal.

•    You can limit imports and extract low import prices from foreign suppliers if you are a major world buyer.

•    You can gain optimal tariff revenues for public purposes by taxing foreign imports.

•    You can charge optimal (minimal) tariffs and encourage good will from trade partners, leading to tariff-free exports for domestic producers and workers.
    
Question No.  26      
________________________________________
The “optimal tariff” can be imposed because -
      
Options     
    
•    Foreign exporters start to lose market share and are willing to reduce their price to offset that trend

•    Governments are permitted by the WTO to impose tariffs if domestic markets start to be dominated by foreign exporters.

•    The government of the importing country is sovereign and can impose whatever taxes or tariffs it wishes to.

•    The foreign exporters lose consumer surplus when their purchases go from the larger quantity shown in the diagram to the smaller one as prices go up.

•    New U.S. investments abroad.

Question No.  27    
The “capital account” in balance of payments data includes -      
 
Options    

•    Everything in the balance of trade.       

•    U.S. government payments to other countries for military bases.       

•    Profits that Nissan of America sends back to Japan.       

•    New U.S. investments abroad.

Question No.  28      
________________________________________
An international cartel that maximizes its profits is optimal for -
      
Options     
    
•    The member countries and the world.

•    The member countries but not the world.

•    The consuming countries and the world.

•    No country at all.
    
Question No.  29      
________________________________________
The characteristics of quotas and tariffs are described correctly by which of the following:
      
Options     
    
•    Tariffs assure a certain final price for imports, but not as surely as a quota does.

•    Quotas assure a certain limited quantity of imports, but not as well as a tariff does.

•    Quotas assure a certain final price for imports better than a tariff does.

•    Tariffs do not assure a certain limited quantity of imports as a quota does.
      

Question No.  30      
________________________________________
The best and probably rarest way to allocate import licenses is -
  
Options     

•    Applying rational rather than arbitrary (bureaucratic) criteria to award import licenses on the basis of merit.

•    Avoiding injustice and favoritism by granting the scarce and highly demanded licenses on a purely random basis (regarded as the “lottery effect” of license distribution).

•    Inviting the countries or firms who want to sell the commodity in question to participate in a competitive auction to be held by the customs agency of the importing country for import licenses.

•    Achieving equity by assigning fixed shares to firms according to the market shares they have previously enjoyed in the market in question.
      
Question No.  31      
________________________________________
. “When a country exports a commodity produced with intensive use of its abundant factor, that factor’s returns will rise.” This statement is -
      
Options     
    
•    The Hecksher-Ohlin Theory 

•    The Stolper-Samuelson Theorem

•    The Leontief Paradox

•    The Modern Trade Theory
    
Question No.  32      
________________________________________
“Countries export commodities produced through the intensive use of factors which they possess in abundance. Labor abundant countries export labor-intensive commodities and import capital-intensive commodities.” This statement is-
      
Options     

•    Classical Smith/Ricardo Trade Theory

•    The Stolper-Samuelson Theorem

•    The Leontief Paradox

•    None of the above
    
Question No.  33      
________________________________________
In the Heckscher Ohlin model, international trade is based mostly on a difference in -
      
Options     
    
•    Technology

•    Product Differentiation

•    Economies of Scale

•    Factor Endowments
    
Question No.  34      
________________________________________
Intra-industry trade (IIT) is -
  
Options     

•    The result of nations following their comparative advantage.

•    He result of capital-intensive nations trading with labor-intensive nations.

•    Trade among the various firms of a single industry in one country.

•    Two-way international trade in very similar products.
    
Question No.  35      
________________________________________
According to modern (“alternative”) trade theory -
      
Options     
    
•    Trade depends on scale economies, not consumer preferences

•    Trade depends on consumer preferences, not scale economies.

•    Historical quirks can lead to external economies which promote trade advantages

•    Trade patterns are unrelated to the industrial or market structures (monopolistic competition or oligopoly) of traded goods. 
    
Question No.  36      
________________________________________
Ricardo explained the law of comparative advantage on the basis of -
      
Options     
    
•    Opportunity costs

•    The law of diminishing returns

•    Economies of scale

•    The labor theory of value
    
Question No.  37      
________________________________________
It refers to the balance of difference between the value of total imports and export of visible material goods and it is the -
      
Options     

•    Balance of Trade

•    Balance of Exchange Rate

•    Balance of Capital

•    Balance of Payments
    
Question No.  38      
________________________________________
"Balance of payments of a country is a record of all economic transactions over a period with the rest of the world." Defined by -
  
Options     

•    Benham

•    Kindleberger

•    James O. Ingram

•    P.T. Ellsworth
    
Question No.  39      
________________________________________
Receipts and payments are recorded on the basis of the -
      
Options     
    
•    Multiple Entry System

•    Double Entry System

•    Accounting Entry System

•    Generally Accepted Accounting Principals (GAAP) System
      
Question No.  40      
________________________________________
The balance of payments account of a country is constructed on the principle of double-entry -
  
Options     
 
•    Final Accounts

•    Journals

•    Accountancy

•    Book-keeping