Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade – II - Question Paper

A 2nd change has to do with international differences in interest rates. Until recently, the dollar was helped by the Federal Reserve's policy of raising interest rates (a quarter of a percentage point at 16 consecutive meetings after June 2004) at a time when the Europeans held steady. Now the tables are turned: markets are worried that the Fed will stop at 5%, but the European Central Bank is raising interest rates and will probably soon be joined by the Bank of Japan.

This is linked to a 3rd point: there has been a change in beliefs about how economies are faring. Whereas the rattling pace of America's economy is expected to slacken in the 2nd half of the year, the slower-growing euro area and Japan are thought to be picking up—even if in Europe this is still more evident in confidence surveys than in hard figures. 4th and most pressing, there are deeper concerns about the American economy. Wall Street is much more worried about inflation than it was a few months ago—and markets are yet to be convinced that the Fed's newish chairman, Ben Bernanke, will tackle inflation with sufficient vigour.

It would be nice to think that the dollar's decline heralded an orderly adjustment of global imbalances (the greenback's recent tumble may have been started by a stern communiqué from the G7 last month about the world economy). But do not get your hopes up. Although a fall in the dollar should help to decrease America's current-account deficit, by making exports cheaper and imports dearer, it will have to go a lot further to make much of a dent. Indeed, the current-account deficit has carried on climbing these past few years, even though the greenback has been weakening for most of the time. 1 way or another, America is still going to have to save more and the rest of the world save less.

Caselet 3

learn the caselet carefully and ans the subsequent questions:

11. “Keeping aside the positives and the negative results of the meeting, the case for the lowest Developing Countries (LDCs) is comparable to providing people with money to buy their coffins.” explain.

(7 marks) < ans >

12. explain the probable impact of the ministerial meet on India's farm and manufacturing exports in the global markets.

(7 marks) < ans >

The liberalization drive that is being promoted by the WTO has a potential to lead to the closure of local firms, resulting in the loss of livelihoods to many farmers. That is a reason of concern since in the past also; liberalization has proved disastrous for several local firms leading to their closure. With tariffs going down followed by cheaper imports, there is always a possibility of local products and jobs getting displaced. At the identical time, 1 cannot ignore the brighter side of liberalization. Liberalization leads to the increase in exports that brings with it more jobs and revenues. At the identical time, it needs to be kept in mind that not all countries possess the production capacity and efficiency to take the fullest of the advantage. There are a few countries that benefit out of it while certain countries obtain it difficult to generate any gains out of the identical. In the recently concluded 6th ministerial conference, both the aspects of fear of losing out the imports as well as the potential of increasing the exports were the center of discussion.

Earning:   Approval pending.