BSAD 680 Final Exam

Topics: Foreign exchange market, Futures contract, Derivative Pages: 9 (2906 words) Published: July 28, 2014
BSAD 680.20 Final Exam
March 5, 2014

Directions:
Answer four of the following seven essay questions. Essay answers should be in paragraph form using complete sentences. (No bullet points) Use APA style for citations as needed. Exams may be subject to student submission using Turnitin at the professor's discretion. Your answers should be submitted as a Word file attached to an email sent to me by the start of class on March 5th. While brevity is the soul of wit, essay answers should err on the side of completeness versus brevity. That said, I don't want to see the answer to any question go beyond two single-spaced typewritten pages using a font size of 10-12 points.

1. Congratulations! You have just been elected ruler of a small LDC. What steps will you take to manage the country's balance of trade, and its currency? Name and use an actual country - don't make one up.

Sierra Leone is a country that is rich in agricultural and mining resources, yet the great majority (over 70%) of the country still lives in poverty. Economic growth is hindered by disadvantageous exchange rates and government budget deficits. As the recently elected President of Sierra Leone, I will take any and all necessary steps to bring this beautiful country out of poverty (www.heritage.org, 2014).

Sierra Leone is currently working with the International Monetary Fund (IMF) to implement changes and improvements in our country’s economic system. Sierra Leone has made important strides in economic reconstruction and macroeconomic as well as political stability since the end of the civil conflict in 2002. Economic growth has strengthened in the last two years with a stream of iron ore production and increased infrastructure investment. As the new president, I will continue working with the IMF to manage the balance of trade and stabilize our currency (www.imf.org, 2013).

In regards to Sierra Leone’s currency, the exchange rate system is classified as floating, with the value of the leone (currency) determined by the market. Currently, the central bank’s interventions are limited and aimed at smoothing volatility in the market. In order to stabilize the currency, I will diligently work with the Bank of Sierra Leone (BoSL) and with the IMF to introduce a stringent stabilization policy and reduce our country’s debt. This policy will be aimed at first and foremost at tightening monetary regulations and reducing government borrowing. I will encourage the BoSL to move from a wholesale foreign exchange auction system to a retail auction system available to importers. This will enhance the currency’s stability in the market as well as improve competitiveness.

I will also work with the BoSL to improve monetary policy signaling, address remaining gaps in banking supervision, monetary and foreign exchange operations. I will also work with the BoSL on access to finance in order to actively support initiatives to encourage the development of microfinance in rural areas. Lastly, and perhaps most importantly, I will continue to work with the IMF and the BoSL to develop a financial literacy campaign that will help to spread knowledge and motivation to continue efforts to stabilize the currency (www.imf.org, 2013)

As president, I have also been charged with stabilizing trade in Sierra Leone. One of the biggest challenges in trade in Sierra Leone is that of smuggling and illicit trading activities. Sierra Leone is known for mining, especially diamonds, but poor regulation and policy enforcement, and high levels of corruption that lead to considerable levels of money laundering activities. As president, I will establish stricter controls and taxes around the mining trade, and crack down on corrupt government officials. I will continue to work with the government-created mining community development fund (DACDF), created to raise local communities' stake in the legal diamond trade, which returns a portion of diamond export taxes...

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