Description

Business Economics
April 2023 Examination

1. Given that the USD-GBP sport rate is 0.82
Calculate:
a. The 90-day forward USD-GBP exchange rate, given that the
 90-day risk free interest rate in the United States is 0.25%
 90-day risk free interest rate in Great Britain is 0.1%
b. The 180-day forward USD-GBP exchange rate, given that the
 180-day risk free interest rate in the United States is 0.25%
 180-day risk free interest rate in Great Britain is 0.1%
c. If the risk free interest rate in the US remains the same, while the interest rate in
Great Britain increases by 25 bps, how would the calculations in (a) and (b) change. (10
Marks)
Ans 1.
Introduction
The USD-GBP spot rate is the current exchange fee between us dollar (USD) and the British
pound (GBP) at a specific factor in time. It represents the amount of GBP that can be
exchanged for 1 USD on the triumphing marketplace fee. The spot rate is determined through
delivery and demand inside the foreign exchange marketplace. It can frequently fluctuate due
to diverse financial, political, and social factors affecting the two countries. The spot rate is
essential in determining global trade prices, investments, and transactions involving USD
and GBP.
(a) To calculate the 90-day forward change charge, we want to apply the interest charge
It is only half solved
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2. A representative economy is described by the following parameters.
C = C0 + bYd, T = T0, I = I0
C0 = 85, I0 = 30, T0 = 20, b = 0.75.
a. Find the equilibrium output for this economy, assuming it is a closed economy.
b. How would this equilibrium output change if the tax structure becomes a
proportional
tax? New tax rule, T = 20 + 0.2Y
c. Find the level of
 Consumption
 Tax collection (proportional tax)
(10 Marks)
Ans 2.
Introduction
Equilibrium output refers to the level of authentic gross domestic product (GDP) at which the
total amount of products and offerings demanded (mixture call for or ad) is equal to the total
quantity of goods and services produced (aggregate supply or AS) in an economy. In other
words, equilibrium output is the output level in which there is no tendency for a change in
both advert or AS.
The idea of equilibrium output is crucial in macroeconomics because it allows an
understanding of the connection between mixture demand and combination supply in the

3. Case Analysis:

a. Detroit Inc. is a company working in the area of automobiles in the USA. They are
planning to enter the Indian automobile market. They would like to study the market
structure before they are going to enter the market in India. They are undertaking this
study to understand the pricing power they could have in the Indian automobiles
industry. Assuming you are advising them on the same, what technique would you be
employing to understand the market structure? Give rationale for your choice of
technique. (5 Marks)
Ans 3a.
Introduction
To understand the market structure within the Indian vehicle industry, I would recommend
employing the Porter& five Forces Framework. This well-established analytical tool allows
companies to understand the aggressive dynamics of their industry and identify them as
assets of competitive

b. Assuming Indian automobile industry follows an oligopoly market with price
leadership, power vested in one dominant firm, how would you advise Detroit Inc. in
terms of their product placement and pricing strategy? Give a brief summary of your
advice to Detroit Inc.
Hint: Advice should focus on the cooperative or noncooperative model that should be
adopted by Auto Inc. based on the existing scenario in Indian automobile industry, and
the reasons supporting the choice of the model. (5 Marks)
Ans 3b.
Introduction
Suppose the Indian automobile industry follows an oligopoly market shape with price
management, where one dominant company holds the maximum market share and sets the
industry fee. In that case, Detroit Inc. has to consider several factors while growing its