MABINI COLLEGES

Daet, Camarines Norte

International Business & Trade (BACC6/ ECC10)

MIDTERM EXAMINATION
Name: __Erlyn A. David__________________ Class Schedule: __T-Th (11:30-1:00)___
Examination Date: ___Dec 17______________________ Score: _________________

NOTE : FILL IN ALL THE BLANKS ABOVE BEFORE YOU START THE TEST
INSTRUCTION : “BE A CALCULATIVE RISK TAKER”

Test 1- Simple Research

The “Big Mac” Index

The Big Mac Index explained as a way to measure “PPP” or Purchasing Power Parity
across the globe. What is the “Big Mac” Index?

One suggested method of predicting exchange rate movements is that the rate
between two currencies should naturally adjust so that a sample basket of goods and
services should cost the same in both currencies Purchasing power parity.

In the Big Mac Index, the basket in question is a single Big Mac burger as sold by the McDonald’s
fast food restaurant chain. The Big Mac was chosen because it is available to a common
specification in many countries around the world as local McDonald’s franchisees at least in theory
have significant responsibility for negotiating input prices. For these reasons, the index enables a
comparison between many countries’ currencies.

The Big Mac PPP exchange rate between two countries is obtained by dividing the price
of a Big Mac in one country (in its currency) by the price of a Big Mac in another country
(in its currency). This value is then compared with the actual exchange rate; if it is lower,
then the first currency is under-valued (according to PPP theory) compared with the
second, and conversely, if it is higher, then the first currency is over-valued.

Watch this video online: https://youtu.be/6F9xIj1YDxo

Instructions:
Watch the Video: “The Big Mac Index” (8:38)

Follow the LINK to the current Big Mac Index: The ECONOMIST’S “BIG MAC” INDEX
(Burgernomics - The Big Mac index | The Economist). This Index is located on the
Economist Magazine’s website. This is an interactive site, so you can click onto the map and
see how much the Big Mac will cost in various countries. This also gives you information
about whether the currency of that country is under- or over-valued.

Go to the Internet and Google NEWS for “Exchange Rates and International Trade”
(or similar search terms). See example below.

Select a news item relating to Exchange Rates and International Trade. Be sure to copy the LINK to
the news item or article that you select. You will need to include this in your initial discussion board posting.
 MABINI COLLEGES
Daet, Camarines Norte

International Business & Trade (BACC6/ ECC10)

MIDTERM EXAMINATION
Name: __Erlyn A. David__________________ Class Schedule: __T-Th (11:30-1:00)___
Examination Date: ___Dec 17______________________ Score: _________________

NOTE : FILL IN ALL THE BLANKS ABOVE BEFORE YOU START THE TEST
INSTRUCTION : “BE A CALCULATIVE RISK TAKER”

Discussion Board: Exchange Rates and International Trade:

Make your initial Discussion (125 – 150 words).

In this post you should include/answer/ address the following:

● BRIEFLY explain your news item

● Include the LINK to your news item so I can read the full story. (You do NOT need to
attach a copy of the item, just include the link)
● What are the challenges that currency exchange rates pose to doing business in a
global market?

● How can business use exchange rates to their advantage in conducting business
globally?

DISCUSSION TOPIC EXPLANATION TO THE NEWS ITEM

" Clothing and food price falls drive down UK
inflation"
The UK's inflation rate fell dramatically
to 0.3% in November from 0.7% in
October, official figures show.Lower
prices for clothing, food and non-alcoholic
drinks made the biggest contribution to
the fall, the Office for National Statistics
said.However, games, toys and hobbies
increased in price, partly offsetting those
declines.The figures reflect the fact that
most of the country was in some form of
Covid lockdown during the month.Games,
toys and other recreational activities
became more expensive as people tried
to amuse themselves while their
movements were restricted.
 MABINI COLLEGES
Daet, Camarines Norte

International Business & Trade (BACC6/ ECC10)

MIDTERM EXAMINATION
Name: __Erlyn A. David__________________ Class Schedule: __T-Th (11:30-1:00)___
Examination Date: ___Dec 17______________________ Score: _________________

NOTE : FILL IN ALL THE BLANKS ABOVE BEFORE YOU START THE TEST
INSTRUCTION : “BE A CALCULATIVE RISK TAKER”

https://www.google.com/amp/s/au.news.yahoo.com/amphtml/uk-inflation-rate-falls-sharply-
070435235.html

2. What are the challenges that currency exchange rates pose to doing business in a
global market?

With global trade expanding to all parts of the world, it has become increasingly
possible for the companies or business if they purchase any products from another
country. The cost of those products will change if the exchange rate changes. If
the business sells any products to a foreign country. The sale price (and therefore
profits) will change if the exchange rate changes. If the business has borrowed
money from, or lent money to, someone in a foreign country. The amount to be
repaid, and the interest amount, will change if the interest rate changes. The
challenges exist, but there are ways of dealing with them.

3.How can business use exchange rates to their advantage in conducting business
globally

Business use high exchange rate because it is good for importers. Any
company or business which imports products from another currency will benefit
from a higher exchange rate. Conversely a company which exports will find the
exchange rate reducing their profits.And so a low exchange rate will be good for
exporters, as they will make more money on their products they export, and it will
discourage imports as they will cost more.Any time you exchange money you
have to pay a fee.It costs money to exchange currency, which is added to the cost
of the transaction. In addition ForEx rates change all the time. Many companies
will thus buy financial products which ensure that they have a guaranteed
exchange rate for a period of time. Many investment funds which invest overseas
will often buy this ‘hedging’ to ensure that the profits they make are not wiped out
by a drop in the exchange rate.