National and Global Finance
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1. Choose an example of a type of new company you could start, and then use this company idea to answer the questions below. You might choose a pet store, a restaurant, a tutoring business, or something else. This can be the same type of company you chose in assignment 8 or 9, or it can be different.
a. Describe the type of business you chose. (1-2 sentences. 0.5 points) The type of business I would start would be for family or friends gatherings. This business would be place people come to eat and social, a nice, warm evening. b. Describe at least two ways in which the local, state, or federal government would have an impact on your business. (2-4 sentences. 1.0 points) Whether business owners know it or not, but the government create laws and regulation to protect the business. Two ways the government would have an impact on my business is by setting a price ceiling and price floor. These both determines whether or not my items it too high or low for its’ good.
2. Describe at least one advantage and one disadvantage of price ceilings and price floors. Do you think price ceilings and floors are more helpful or more harmful to consumers and the economy? Explain. (2-4 sentences. 1.0 points) Price controls are the government intervention in free markets. In the case of agriculture without price floors mass starvation could occur as there is often a 2 to 10 year turn around on agricultural investment. Price ceilings on certain food products may also ease starvation. Remember that perfect free markets have never existed except in theory.
3. Describe at least two negative outcomes of having too little money and credit in the economy. (2-4 sentences. 2.0 points) It would cause scarcity or currency, leading to rapid deflation, and also, overproduction of goods means major markets would plummet in value. Overbalancing demand, leading to major losses for the producers.
4. Describe at least two negative outcomes of having too much money and credit in the economy. (2-4 sentences. 2.0 points) It would cause a sacracity of currency, leading to rapid deflation. Overproduction of goods means major markets would plummet in value, outbalancing demand, leading to major losses for the producers.
5. Which Fed tool do you think is most important, and why? (2-4 sentences. 1.0 points) Change the Federal Funds Rate via “Open Market Transactions” (buying and selling gov’t bonds on the open market). By far the most commonly used tool. Whenever you read about the Fed “changing the interest rate” they are referring to open market transactions & the Federal Funds Rate. Since they cannot set the rate directly, but do it indirectly by buying and selling bonds on the open market, they usually refer to the desired interest rate as the “target” rate.
6. Choose one of the following government agencies or laws: FTC, EPA, FDA, CPSC, OSHA, FLSA, EEOC, ADA, SEC, or Affirmative Action. Search online to learn more about the agency or law, and then describe three specific things the law or agency accomplishes. Make sure the information comes from a trustworthy website. Include a link to the website in your answer. (3-6 sentences. 1.5 points) The EPA or Environmental Protection Agency seeks to protect ordinary citizens from the devastation and destruction that may occur when people/companies are not held accountable for their actions environmentally. In most cases this agency has been very effective and is used as a model all over the world to protect streams, rivers, air and people.
7. Describe at least two products that are commonly imported into the United States. (1-2 sentences. 0.5 points) Coffee (Brazil and Columbia) and Cotton T-shirts (Mexico, Honduras among a lot of others)
8. Describe at least two products that are commonly exported from the United States to other countries. (1-2 sentences. 0.5 points) Two of the largest American exports are “Oil seed” and “Machines, engines, pumps”, both to China for a combined total of 27.2 billion USD.
9. Why does the U.S. government encourage U.S. companies to sell their products in other countries? Explain how this helps the U.S. (2-4 sentences. 2.0 points) The U.S. government encourages the U.S. companies to sell their products in other countries because other countries may offer better opportunities for growth.
10. Find the value of one U.S. dollar in a foreign currency. You might choose the Euro, the Japanese Yen, the Canadian dollar, or another currency. List the type of currency and the current value of the U.S. dollar in that country. (1.0 points) TIP: http://www.google.com/finance/converter is a good resource for foreign currency information. US 1 dollar = Jordanian 75cents
11. Describe at least three exchange rate factors that are likely to attract foreign investors to a country’s currency. Explain why these factors are attractive for foreign investors. (3-6 sentences. 3.0 points) Overview
Before we look at these forces, we should sketch out how exchange rate movements affect a nation’s trading relationships with other nations. A higher currency makes a country’s exports more expensive and imports cheaper in foreign markets; a lower currency makes a country’s exports cheaper and its imports more expensive in foreign markets. A higher exchange rate can be expected to lower the country’s balance of trade, while a lower exchange rate would increase it. Determinants of Exchange Rates
Numerous factors determine exchange rates, and all are related to the trading relationship between two countries. Remember, exchange rates are relative, and are expressed as a comparison of the currencies of two countries. The following are some of the principal determinants of the exchange rate between two countries. Note that these factors are in no particular order; like many aspects of economics, the relative importance of these factors is subject to much debate. Conclusion
The exchange rate of the currency in which a portfolio holds the bulk of its investments determines that portfolio’s real return. A declining exchange rate obviously decreases the purchasing power of income and capital gains derived from any returns. Moreover, the exchange rate influences other income factors such as interest rates, inflation and even capital gains from domestic securities. While exchange rates are determined by numerous complex factors that often leave even the most experienced economists flummoxed, investors should still have some understanding of how currency values and exchange rates play an important role in the rate of return on their investments.