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Xea 309 International Economics Jan 2020

1) The document is an exam for a third year Bachelor of Economics degree focusing on international economics. It contains 5 questions testing various concepts in international trade and finance. 2) Question 1 has 6 subquestions testing knowledge of foreign exchange market participants, mercantilism, current accounts, exchange rate types, absolute advantage theory and tariff types. 3) Question 2 asks about the welfare effects of a tariff on wheat in Kenya and non-tariff barriers in the East African Community. 4) Question 3 covers factor abundance demonstration using quantities and prices, the Hecksher-Ohlin theorem and assumptions, and opportunity costs of trade between Kenya and Uganda. 5) Question 4 defines

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MWEBI OMBUI ERICK D193/15656/2018
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118 views4 pages

Xea 309 International Economics Jan 2020

1) The document is an exam for a third year Bachelor of Economics degree focusing on international economics. It contains 5 questions testing various concepts in international trade and finance. 2) Question 1 has 6 subquestions testing knowledge of foreign exchange market participants, mercantilism, current accounts, exchange rate types, absolute advantage theory and tariff types. 3) Question 2 asks about the welfare effects of a tariff on wheat in Kenya and non-tariff barriers in the East African Community. 4) Question 3 covers factor abundance demonstration using quantities and prices, the Hecksher-Ohlin theorem and assumptions, and opportunity costs of trade between Kenya and Uganda. 5) Question 4 defines

Uploaded by

MWEBI OMBUI ERICK D193/15656/2018
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 4

UNIVERSITY OF EMBU

2019/2020 ACADEMIC YEAR

FIRST SEMESTER EXAMINATIONS

THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF


ECONOMICS

XEA 309: INTERNATIONAL ECONOMICS

DATE: JANUARY 17, 2020 TIME: 8:30 AM-10:30 AM

INSTRUCTIONS:
Answer Question ONE and ANY Other TWO Questions.

QUESTION ONE (30 MARKS)


a) Briefly discuss the participants in the foreign exchange market. (6 marks)
b) Explain whether or not mercantilist beliefs on trade apply today? (6 marks)

c) Highlight the transactions featured in the current account of balance of payments.


(6 marks)
d) What are the merits of a floating exchange rate? (4 marks)
e) Take two countries producing two goods with labour as the only factor of production to
demonstrate Adam Smith's absolute advantage theory. (6 marks)
f) With relevant examples differentiate between the following types of tariffs
i) Specifictariff (lmark)
ii) Ad valorem tariff (l mark)

QUESTION TWO (20 MARKS)


a) Taking Kenya as a small open economy, graphically demonstrate the welfare effects of a
tariff imposed on wheat for the Kenyan residents. (10 marks)
%
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b) The East African Comrnunity Customs Union has been in operation since 2005. Its aim
was to promote free movement of goods and services among the member countries by
removing all trade barriers. However, there still exists trade barriers. Briefly discuss the
non-tariff barriers that exist in the East African Community. (10 marks)

QUESTION THREE (20 MARKS)


a) Given that;
K A is the capital stock in country A, LA is the labour stock in country A and that K B
and LB are the capital stock and labour stock in country B respectively. Similarly, r A
is the interest rate in country A, wA is the wage rate in country A and that r B and
wB are the interest rate and wage rate prevailing in country B respectively.
i) Demonstrate capital abundance in A using the relative factor quantities and factor
pricesrespectively. (5marks)
ii) State the Hecksher-Ohlin theorem (2 marks)
iii) What are the assumption of the Hecksher-Ohlin theorem? (3 marks)
b) You are given that two countries, Kenya and Uganda produce both Maize and Bananas.
The production costs for each unit of the products are given in the table below
Maize Bananas

l
l

To produce l unit of Maize To produce 1 unit of Banan?as -l


W 80 units of labour 90 units of labour
l
l

W- I 120 units of labour 100 units of labour


l
l

Using the concept of opportunity cost, demonstrate whether trade will be beneficial
between the two countries. (lOmarks)

QUESTION FOUR (20 MARKS)


a) Briefly discuss the following stages of economic integration;
i) Customs Union
ii) Common Market. (8 marks)
b) Discuss the functions of the World Trade Organization (WTO) in international trade?
(6 marks)

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c) Discuss the role of the International Monetary Fund (IMF) in iiiternational trade.
(6 marks)
QUESTION FIVE (20 MARKS)
a) Suppose a Kenyan investor has Ksh 20 million to invest, and the following business
information is available to him;

The spot rate between the Kenya Shilling and the US dollar is e = Ksh / $ = Kshl 01, the

91 -days interest rate on CBK Treasury bills is 9% p.a. and the 91 -days interest rate on US
Treasury bills is l 0% p.a.
What are the options of the investor? (10 marks)
b) With the use of a diagram show how a balance of payments disequilibrium is corrected
under a fixed and a floating exchange rate regime? (lOMarks)

-END-

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