Macro 21

2. Lecture 23
Macroeconomics

3. Opening
Prayer

4. Quiz Master

6. The 4 Cases for Trade
Theoretical Case
Moral Case
Political Case
Empirical Case

7. Theoretical Case
Trade and Specialization
Adam Smith
Comparative Advantage
David Ricardo

8. Moral Case
Natural Rights
Human Freedom to create
value relationships

9. Political Case
Cooperation promotes
peace
Bastiat

10. Empirical Case
Evidence and Experience
Support

11. The 14 Arguments for
Protection

12. 1 National Defense
2 Infant Industries
3 Debt
4 Jobs
5 Subsidy
6 Environmental Standards
7 Labor Standards
8 Negotiating Strategy
9 Retaliation
10 Dumping
11 Culture
12 Self-Reliance Independence
13 Tari
ff
Tax Revenue
14 Supply Chain
Arguments for Protectionism

13. National Defense

14. Save Domestic Jobs

15. Infant Industries

16. Competitor Enjoys
Subsidies

17. Lower Environmental
Standards

18. Lower Labor
Standards

19. Retaliation

20. Foreigner is dumping
at below cost

21. Culture

22. Self-Reliance
Independence
Autarky

23. Government Tax
Revenue

24. Supply Chain

25. Chapter 20
International Finance

26. 100+ Currencies
https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

27. one
unit
of
this
will buy ___ units of that

28. https://www.tradingview.com/markets/currencies/cross-rates-overview-prices/

29. Why buy Dollars?
Buy American Stuff
Invest in America
Trade for other currencies
Hold and Hope

30. Demand
Dollars
Yuan
Per Dollar
Supply
Higher U.S.
Interest
Rate
6.44
6.50
Depreciating
Cost more to
buy a dollar
Losing
Value

31. Demand
Dollars
Yuan
Per Dollar
Supply
Lower U.S.
Interest
Rate
6.44
6.25
Appreciating
Cost Less to
buy a Dollar
Gaining
Value

32. Big Mac Index

33. Big Mac Index
Country Currency Price Rate Dollars
Phillipines Peso 140 0.019 $2.66
Vietnam Dong 65,000 0.000043 $2.80
China Yuan 20.50 0.15 $3.08
Saudi Arabia Riyal 12 0.265 $3.18
Switzerland Franc 6.5 1.0 $6.50

34. Arbitrage
Buy low and sell high
Buy here and sell there
Buy today and sell tomorrow

35. Arbitrage
Are the price differences
different than the exchange
rate?
If so, buy low and sell high

36. The Law of One
Price
Arbitrage closes price gaps
Bid up the low price - Demand
Bid down the high price -
Supply

37. 1.00 Dollar to 6.92 Yuan
USD to CNY
$ to ¥
$ 5.00
x
6.92
=
¥ 34.60
¥ 30.00
÷
6.92
=
$ 4.34

38. $ 5.00
$ 4.34 increase demand
increase supply
$ 4.67 one price
Price Arbitrage
Arbitragers

39. Arbitraging
1. Pick a product and review the prices in both countries
2. Are the prices different than the exchange rates?
3. Buy currency in the low priced country
4. Buy the product in the low priced country
5. Move to the high priced country
6. Sell in the high priced country

41. 1.00 Dollar to 51.91 Peso
USD to PHP
$ to ₱
$ 50.00
x
51.91
=
₱ 2,595
₱ 1,973
÷
51.91
=
$ 38.00

42. $38
$40 $40
Supply
More Supply
Demand
More
Demand
Price
Quantity
Price
Quantity
Demand
Supply
$50
₱ 1,973

43. Cost?
Arbitraging
1. Traded $38 for ₱ 1,973
2. Bought shoes for ₱ 1,973
3. Shipped to U.S.
4. Sold in U.S. for $50
5. Traded $38 for $50
6. Made $12 on $38
7. Made 31 percent profit
8. Repeat

44. 1. Dollar to Won (KRW) rate is 1 to 1,176
2. Cell Phone in U.S. is $600
3. Same Cell Phone in South Korea is 600,000
4. Cost to ship is $5
5. What should you do and how much will you
make? Dollars and percent?