Question

1. Let's say that you make the following investment: On January 1, you purchase 12,000 Indian Rupees. You purchase them with U.S. dollars. On this day, one U.S. dollar exchanges for 60 Rupees. On April 1, you sell your 12,000 Indian Rupees back for U.S. dollars. On April 1, one U.S. dollar exchanges for 50 Rupees. How much did it cost you to buy the Rupees on January 1? How many dollars did you sell them for on April 1, and how much money did you gain or lose (assume for simplicity that there are no exchange fees)?

It cost you $720,000 to buy the 12,000 Rupees on January 1. You sold them for $600,000 on April 1. You lost $120,000.

It cost you $12,060 to buy the 12,000 Rupees on January 1. You sold them for $12,050 on April 1. You lost $10.

It cost you $200 to buy the 12,000 Rupees on January 1. You sold them for $240 on April 1. You profited $40.

It cost you $200 to buy the 12,000 Rupees on January 1. You sold them for $171 on April 1. You lost $29.

It cost you $100 to buy the 12,000 Rupees on January 1. You sold them for $120 on April 1. You profited $20.

2. Most economists agree that protectionism (restricting international trade by imposing tariffs, quotas and other trade restrictions on foreign imported goods and services) may benefit some groups in our society, but is harmful to the overall economy. Which of the following is a reason why protectionism is harmful to the overall economy?

Protectionism leads to an increase in the domestic country's money supply and therefore leads to a lower value of the dollar in the long run.

Protectionism leads to lower import prices and an over-supply of foreign companies, who will eventually develop into monopoly firms.

Protectionism leads to more government spending and thus leads to higher long run tax rates.

Protectionism leads to higher prices on imported goods and likely retaliation by foreign governments (this will hurt our exports).

Answer 1

So correct answer is option (c).