STUDENT VERSION

Problem Set for Group 1

Question 1

Read the opening case “Apple Moves Production out of China”. Discuss the case from the
perspective of the following questions:

a. Discuss globalization and how Apple epitomizes the phenomenon. How has globalization,
and specifically the globalization of markets and production, changed the nature of U.S.
industry?

b. How has U.S. trade policy impacted Apple? What does it mean for consumers?

c. What are the advantages and disadvantages of concentrating production in a single country,
as Apple did with China?

Question 2

Read the closing case “TruckLabs”. Discuss the case from the perspective of the following
questions:

a. What was the logic behind Burrows’s original decisions to (i) outsource production for
TruckWings components to Taiwan and China and (ii) keep research and software functions
in the United States? Did this distribution of different activities make sense in the world that
existed prior to 2017? What were the benefits, and what were the costs and risks of these
decisions?

b. How did the imposition of a 25 percent tariff on imports from China by the Trump
administration affect TruckLabs? Who benefited from this decision? Who lost out? Can you
see any potential unintended consequences of these tariffs?

c. What does this case teach you about the benefits, costs and risks associated with
outsourcing value creation activities to different locations around the world?

Question 3

(a) Globalization while providing tremendous opportunities and benefits to MNC’s also
provides significant challenges.

i) What are the important challenges faced by managers specifically in an international

business?

ii) In this context, how is managing an international business different from managing a
purely domestic business?
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(b) While most economists, politicians and business leaders seem to think that the shift toward
a more integrated and interdependent global economy a good thing, globalization is not without
its critics. Since 1999, when protesters against globalization targeted the WTO meeting in
Seattle, anti-globalization protesters have turned up at almost every major meeting of a global
institution. Protesters fear that globalization is forever changing the world in a negative way.
Analyze the arguments for and against globalization with regards to:

i) Jobs and income

ii) Labor and environmental protection

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Problem Set for Group 2

Question 1

Read the opening case “The Ethics of Making Soccer Balls”. Discuss the case from the
perspective of the following questions:

a. How can companies ensure that their suppliers are not violating human rights? How does
the reliance on few outsourced suppliers contribute to unethical situations in the factories that
supply soccer balls?

b. Child labor is not uncommon in Pakistan. Discuss the ethics of hiring child labor. Does
your response change if the child in question is the sole earner for a family?

c. Would you boycott a brand if its products were produced in sweatshop conditions? Do you
see any drawbacks to boycotting? Discuss.

Question 2

Read the closing case “Gucci’s Code of Ethics”. Discuss the case from the perspective of the
following questions:

a. What does the incident involving the Gucci store in Shenzhen, China, tell you about the
difficulties implementing a code of conduct? Did this incident prove that Gucci’s system
failed or that it worked?

b. Would Gucci’s detailed code of ethics enable it to quickly solve ethical dilemmas, such as
those noted in the opening case to this chapter? What would you recommend that a company
like Gucci do when confronted with an ethical dilemma where none of the obvious courses of
action are without adverse moral consequences?

c. How might a luxury goods company like Gucci experience ethical issues differently from a
mass market product company like Nike?

Question 3

(a) Explain why certain types of environmental pollution can be characterized as a “global
tragedy of commons.” Give an example of environmental pollution that leads to a global
tragedy of commons.

(b) Developed countries typically demand cleaner environment compared to developing

countries and as a consequence have stricter environmental regulations, independent of
environmental regulations in developing countries. But when it came to the Kyoto protocol
on reducing the emission of greenhouse gases, why did developed countries like USA,
Australia etc. refuse to act independently and ratify the protocol in the absence of guarantees
by developing countries like China, India etc. to substantially regulate their own greenhouse
emissions? How does this contribute to the global tragedy of commons?
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(c) International businesses frequently find themselves facing ethical dilemmas. Define an
ethical dilemma. Give a specific example of a scenario where the adoption of a uniform ethical
code by international businesses that is blind to the prevailing conditions in the host country
could lead to an ethical dilemma?
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Problem Set for Group 3

Question 1

Read the opening case “The Rise of Taiwan” Discuss the case from the perspective of the
following question:

a. What are the main rationales for globalization & trade between countries and how has
Taiwan’s experience illustrated these advantages as exemplified by the beginning statement in
the case “Taiwan has benefited more than most countries from globalization.”

b. How do different theories of trade help explain the evolution of Taiwan’s economy?

c. What proactive roles can governments play in promoting the competitive advantage of
appropriate domestic sectors, and how did Taiwan’s government exemplify this approach?

Question 2

Read the closing case “Global Trade War in Semiconductors” Discuss the case from the
perspective of the following questions:

a. Why do you think chip manufacturing has migrated to Asia in recent years? Has this
migration been beneficial for American consumers? For American producers?

b. Why did the Trump administration place restrictions on the export of certain chips and
technology to China? Do you think this was the correct thing to do? How would you expect
China to respond?

c. Is the Biden Chips Act good for producers? Is it good for consumers? Is it necessary for the
national security of the United States?

d. How might the growing conflict between China and the United States shape the global
semiconductor industry going forward? What happens to the gains from trade in an industry
where the geography of production is determined by subsidies and export restrictions?

Question 3

(a) For each of the following scenarios determine the trade theory that provides the best
rationale.

(i) London is the world’s leading financial center largely due to its strategic location in a central
time zone that lies between America and Asia.

(ii) Bangladesh is relatively abundant in low-cost unskilled labor and therefore excels in the
exports of labor-intensive textile manufacturing.

(iii) Strict enforcement of antitrust regulations in Japan that promoted intense competition
between Japanese facsimile companies eventually led to their domination of the global market.

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(iv) The dominance of America and Europe in the trade of midsized and large jet aircraft is
primarily due to the fact that Boeing (USA) and Airbus (Europe) were the early movers in the
commercial aircraft industry.

(v) Technological leadership in the U.S. semiconductor industry provided the basis for U.S.
success in personal computers and several other technically advanced electronic products.

(b) Assume that Vietnam and Korea produce only two goods: noodles and wine. Further
assume that each country is endowed with 300 labor hours which can be used to produce
noodles and wine. The following table shows the number of labor hours required to produce
one unit of noodles and wine in each country

Labor hours required to produce 1 unit of noodles and wine

Noodles Wine
Vietnam 6 15

Korea 3 12

(i) If there is no trade between the two countries, suppose Vietnam uses half of its labor
resource ( i.e. 150 hours) to produce noodles and the other half to produce wine, while Korea
devotes 204 hours to produce noodles and 96 hours to produce wine. Calculate the output of
noodles and wine in each country.

(ii) If there is specialization and trade between the two countries, which country should
specialize in the production of noodles? Which one in wine?

(iii) Suppose that the two countries agree on a terms of trade such that THREE units of
noodles can be exchanged for ONE unit of wine. With trade, the country specializing in wine
sells 9 units of wine to the country specializing in noodles at the prevailing terms of trade.
Compared with the situation without trade (i.e., part (i)), calculate the additional
consumption in noodles and wine that: (i) Vietnam is able to enjoy if there is specialization
and trade and (ii) Korea is able to enjoy if there is specialization and trade.

(iv) Over the range of possible (i.e. acceptable to both countries) terms of trade for the two
goods in terms of the amount of noodles exchanged for a unit of wine, calculate the MOST
FAVORABLE terms of trade for the country specializing in noodles and the MOST
FAVORABLE terms of trade for the country specializing in wine?

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Problem Set for Group 4

Question 1

Read the opening case “America’s Inflation Reduction Act and Electric Vehicle Subsidies”.
Discuss the case from the perspective of the following questions:

a. Does the Inflation Reduction Act provide cover for the United States to shift to a more
confrontational trading approach, erecting tariff barriers to protect domestic industries from
foreign competitors and increasing its own subsidies to support domestic producers? In the
goal of creating a new industrial policy to motivate a switch over to greener technology, has
the US created unfair trading practices?

b. Will the IRA put pressure on European car manufacturers to increase their incentive to
invest in North American production facilities, even if the costs of producing in North
America are higher. Does this reality imply potential job losses in Europe?

c. What are the potential long-term consequences of government intervention in trade, such
as the actions taken by the United States through the IRA as described in the case?

Question 2

Read the closing case “The Jones Act”. Discuss the case from the perspective of the following
questions:

a. What were the intended consequences of the Jones Act? Do these intentions seem
reasonable? How successful has the Jones Act been in achieving its original objectives?

b. Why is the Jones Act often viewed as a restraint on trade? What do you think would happen
if the Jones Act was repealed?

c. Why do you think that the Jones Act is still in place? What does this teach you about the
politics of trade policy? What would it take to repeal the Jones Act?

Question 3

(a) Identify the effect of tariffs, subsidies and export quotas on each of the sectors of the
economy given in the table below. For each sector you just need to mention whether the effect
is Positive, Negative or No/Uncertain Effect. For all the above instruments assume the
country imposing them as the domestic country and the other countries in a trading relationship
with this country as the foreign countries. Finally assume that all countries involved in trade
have large economies, the markets for the goods on which these trade intervention instruments
are imposed are all highly competitive and the export quotas are not auctioned.

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Tariffs Export Quotas Subsidies

Domestic Producers

Foreign Producers

Domestic Consumers

Foreign Consumers

Domestic Taxpayers

(b) Explain why strategic trade policy though appealing in the short-run might be counter-
productive in the long-run.

(c) Interventions by government in free trade through trade barriers benefit domestic producers
and workers but impose welfare losses on consumers and/or taxpayers. Given that consumers
and/or taxpayers are vastly more numerous than those involved in the sectors benefited through
trade barriers, why are the consumers and/or taxpayers not able to generate enough political
pressure to counter the imposition of trade barriers?

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Problem Set for Group 5

Question 1

Read the opening case “McDonald’s In Russia”. Examine the issues discussed in the
case from the perspective of the following questions:

a. Examine how the relevant theories of FDI together explain McDonald’s strategy and
experience with Foreign Direct Investment in Russia?

b. What did McDonald’s learn from its experiences in Russia? Why did McDonald’s, a
company that had traditionally favored wholly owned operations, form a joint venture
with the Moscow City Soviet Government? How did McDonald’s experience in Russia
help in its overall strategy?

c. What prompted McDonald’s to sell its business and abandon the Russian market? Do
you feel McDonald’s concerns were valid? Why or why not?

Question 2

Read the closing case “Tesla’s Investment in China”. Examine the issues discussed in
the case from the perspective of the following questions:

a. Why did Tesla decide to invest directly in China rather than continue to export cars
from the United States?

b. Why is China giving subsidies to Tesla, which, after all, is a foreign auto
manufacturer? What is it that China hopes to gain?

c. Does the ongoing trade war between China and the United States, and the
deteriorating relationships between the two countries, create problems for Tesla? What
are the risks here and how might they impact Tesla? What can Tesla do to mitigate
these risks?

Question 3

(a) When contemplating FDI, what are the reasons that might make firms prefer to
acquire existing assets rather than undertake Greenfield investments?

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(b) What are the types of industries for which licensing is not a good option?

(c) For each of the following Foreign Direct Investment (FDI) scenario, identify the
FDI theory that provides the best rationale.

(i) Nike invested in shoe-making factories in Vietnam due to the easy availability of
low-cost semi-skilled labor that are needed to make shoes.

(ii) Starbucks typically invests in foreign markets through joint ventures since it wants
tight controls over local operations and business strategy.

(iii) Financial firms from all over the world invest in having a presence in New York
(Wall Street) in order to take advantage of the knowledge generation related to financial
products that takes place in New York.

(iv) Toyota invested in new automobile manufacturing plants in USA in response to

quotas imposed by the US government on imports of Japanese cars

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Problem Set for Group 6

Question 1

Read the opening case “The African Continental Free Trade Area”. Examine the issues
relevant to the case from the perspective of the following questions:

a. Examine the main economic arguments in favor of African Continental Free Trade
Area (AfCFTA) and how might these benefits transform Africa’s economic landscape?
What challenges could undermine the success of the AfCFTA?

b. How will the African Continental Free Trade Area (AFCFTA) agreement affect
regional trade? If successful, can the agreement make African nations more competitive
with emerging South Asian regions?

b. How would you evaluate the economic value of the African Continental Free Trade
Area (AfCFTA) in regard to encouraging foreign direct investments (FDI)?

Question 2

Read the closing case, “Britain Post-Brexit”. Examine the issues relevant to the case
from the perspective of the following questions:

a. Why did a majority of British voters want to leave the EU? To what extent were the
arguments of those who wanted to leave the EU based on economic considerations? To
what extent were they based on “other” considerations? What were those “other”
considerations? What are the lessons that can be drawn from the Brexit debate?

b. What does the Brexit case teach you about the benefits and drawbacks of being a
member of a free trade zone?

c. Given where Britain stands today, do you think Brexit was in the best interests of
the British people? For Brexit to be a net positive for the British economy in the long
run, what has to happen?

Question 3

(a) Define the concepts of trade creation and trade diversion in the context of regional

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economic integration.

(b) Explain from the perspective of relevant trade theories, the rationale behind the
concern that regional economic integration could potentially replace more efficient
external trade of member countries with less efficient internal trade within member
countries?

(c) What is an optimal currency area? Why is eurozone not considered an optimal
currency area?

(d) Economists argue that since the eurozone is not an optimal currency area, therefore
the eurozone countries should have first created a political union before adopting the
euro as their common currency. What is the rationale behind this argument?

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Problem Set for Group 7

Question 1

Read the opening case “What Ails Türkiye?”. Examine the issues relevant to the case from the
perspective of the following questions:

a. How have Türkiye’s monetary policies impacted the value of the Turkish lira and the broader
economy, when examined through the lenses of the foreign exchange theories discussed in this
topic?

b. Discuss the impact of Erdogan’s “unorthodox” understanding of monetary policy. Why

haven’t other factions of the Turkish government stepped in and made changes?

c. How have Türkiye's monetary policies affected the average Turk? Will the Turkish people
continue to support the unconventional policies of the Erdogan administration?

Question 2

Read the closing case “Hedging the Thai Baht”. Examine the issues relevant to the case from
the perspective of the following questions:

a. What are the risks for Thai firms of not hedging the value of the Thai baht against other
major trading currencies, such as the U.S. dollar? why do you think so many Thai exporters
chose not to hedge?

b. Do you think it’s possible for Thailand to manipulate the value of its currency against the
U.S. dollar, as the U.S. Treasury Department suggested in 2020? What are the challenges they
would face in doing this?

c. Given the persistent volatility of the Thai baht against the U.S. dollar, what hedging
strategies can small and mid-sized Thai firms, which often lack the financial resources and
global reach of large multinational corporations and therefore are particularly vulnerable,
implement to manage their foreign exchange risk? Please provide an appropriate rationale for
your strategies.

Question 3

(a) What are the THREE important types of exposure to currency exchange rate fluctuations
that impact the operation of international businesses? Explain by providing a real-life example
for each of these types.

(b) Suppose two countries, North and South Pogo, both produce a single and identical product
called pogo sticks! Assume that there is no transaction cost associated with trade and capital
flows between the two countries. The currencies of the two countries, North and South Pogo,
are denoted by ¥ and $ respectively.

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(i) Suppose the unit price for pogo sticks is ¥40 in North Pogo and $8 in South Pogo, while the
current exchange rate is $1 = ¥4. Explain how the current exchange rate between ¥ and $ will
get adjusted by market forces through the Law of One Price. What will be the adjusted
exchange rate between the two currencies?

(ii) Suppose the nominal interest rate in North Pogo (in) is higher than the nominal interest rate
in South Pogo (is) by 4%. What would the Fisher effect imply about the expected difference in
inflation rates between North Pogo and South Pogo, where we denote the expected inflation
rates in North and South Pogo as In and Is respectively. What would you expect to be the effect
on the exchange rate between and ¥ and $?

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