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Ans:- Ans. The optimum tariff is that ate of tariff that maximizes the net
benefit resulting from reduction in the volume of trade. That is starting from
free trade position as the nation increases its tariff rate, its welfare increases
up to the maximum and declines as tariff rate increases.
Q(4):- Which of the following are direct foreign investments, and which are
not?
(A)A Saudi Business man buys a $10 million IBM stock is- It is Not a
Direct Investment.
(D) An Italian firm builds a plant in Russia and manages the plant as
a contractor to the Russian government is- It is a Direct
Investment.
Q(5):- Under what conditions is the formation of a customs union more likely
lead to trade creation and increased welfare?
Ans. A custom union is more likely to lead to trade creation and increased
welfare under the following conditions:
a) The higher are the reunion trade barriers of member countries. There
is then a greater probability that formation of the custom union will
create trade among union members rather than divert trade from
nonmembers to members.
b) The lower are the customs union’s barriers on trade with the rest of the
world. This makes it less likely that formation of the customs union will
lead to costly trade diversion.
c) The greater is the number of countries forming the customs union and
the larger their size. Under these circumstances, there is a greater
probability that low-cost Producers fall within the unions.
d) The more competitive rather than complementary are that economies
of member nations. There are then greater opportunities for
specialization in production and trade creation with the formation of
the customs union. Thus, a customs union is more likely to increase
welfare if formed by two competitive industrial nations rather than by
an industrial nation and an agricultural (complementary) nation.
e) The closer geographically are the members of the customs union. Then
transportation costs represent less of an obstacle to trade creation
among members.
f) The greater is the pre-union trade and economic relationship among
potential Members of the customs union. This leads to greater
opportunities for significant welfare gains as a result of the formation
of the customs union.
Ans:- Ans. Custom union is existing between country A and C. thus free
trade will be exist between country A and C. Because Country A and C is a
part of custom union. A levies 100% ad valorem tariff on imports from
country Band the free trade price is $2 but not applicable with country B
because country B is not a part of custom union with country A. when A
imports from the country B imposed 100% ad valorem tariff It become $4
due to 100% ad valorem tariff.
EX:-If corporate taxes are 40 percent of earnings in the united states but
only 30 percent in England. It is only natural for U.S firms to invest in
England or reroute foreign sales through subsidiaries there in order to pay
the lower tax rate. The United States would collect a tax of only 10 percent
on foreign earnings (difference between the domestic tax rate of 40 percent
and the foreign tax rate of 30 percent) when foreign earnings are
repatriated.
Q(8):- Discuss the BOP position of any one of the following nations, stating
whether the nation has a surplus or deficit in its current account and capital
account.
(1) US
(2) India
(3) Japan
Ans:- INDIA’S BOP : India’s presently has a deficit in its current account of
Bop, which has Increased substantially after reforms in 1991. In 1991- 92
Current Account Deficit was $1,178 million, which rose to $17,403 million in
2007-08 and accounted for $36,469 million for last three quarters of 2008.
One of the Major Factor for increasing current Account deficit in last few year
has been a rising oil import bill.
Q(9):- Taking the case of any one developing country in Asia, Africa or Latin
America, explaining how the country has gained from International trade and
the economic instability resulting, if any from exposure to international
markets.
There is some support for the view that export receipts are more unstable
than tourism receipts. Although exports are generally more unstable over
the whole period, they were relatively more unstable in the early to mid-
1970s during a period of international instability. Tourism receipts, on the
other hand, were relatively more unstable in the 1980s, partly as a result of
world recession, but also because of structural problems in the tourism
industry in Singapore. Also finds that the development of the tourism sector
in Singapore has exerted a net destabilizing effect on total exports of goods
and services.
Q(10):- Write a note on India’s trade Deficit or Surplus With Any Trading
Partner ?
Ans:- China become India’s second largest trading partner. India enjoyed a
comfortable trade surplus of $1.75 billion, according to Chinese custom
statics. It growth remains at current levels, India china trade could cross $17
billion.