The Theory of Comparative Advantage

Running head: FINC20023
Finc20023
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Name of the University:
Author Note

1FINC20023
Table of Contents
Question 1: Discussing the theory of comparative advantage, while detecting the applicability
in modern context.......................................................................................................................2
Question 2: Differentiating between the corporate governance regimes, while detecting its
impact on stakeholders of the corporation.................................................................................3
Question 3: Classifying the Following transactions...................................................................4
Question 4: Discussing about the interest rate parity theory, while detecting the practical
value or implication of the theory..............................................................................................5
Question 5:.................................................................................................................................6
i) Determining the Australian dollar cash outlay for ABM Ltd for the following actions:.......6
ii) Indicating the manufacturers that ABM should choose solely based on required Australian
dollar cash outlay:......................................................................................................................7
iii) Identifying the changes in the purchase decision for ABM Ltd:..........................................7
Question 6: Determining the annual forward rate premium for GBP and JPY for the stated
maturity......................................................................................................................................7
Question 7: Detecting the Australian dollar price for the car 1 year from now.........................8
Question 8: Discussing whether a put or call option should be purchased, while detecting the
net profit.....................................................................................................................................8
Question 9: Discussing the different ways of interventions that might occur in foreign
exchange market.........................................................................................................................9
Question 10: Detecting which of the hedge position should the organisation adopt...............10
References and Bibliography:..................................................................................................12

2FINC20023
Question 1: Discussing the theory of comparative advantage, while detecting the
applicability in modern context
The comparative advantage theory mainly states an increment in the economic
welfare of the organisation would be conducted, if countries specialise in producing goods
whether they have lower opportunity cost. During the year of 1817, David Ricardo mainly
introduced comparative method, which stated about the relevant advantages that refers to the
uncontested superiority of a country for producing a particular good. The method would
ensure that the company would emphasis on the production method that could improve their
productivity and reduce the negative impact on opportunity cost. However, the measure
mainly falls under free trade method, as it requires the country to follow the free method
criteria for the implementing the comparative advantage theory. Laursen (2015) mentioned
that with the presence of free trade conditions companies are mainly able to minimise the
level of expenses that is conducted on tariff set by different countries.
The comparative advantage can be used in the modern context, where one country
could specialise in one manufacturing process, which could allow them to improve their
productivity, where free trade would increase in value over the period of time. Therefore, the
world output would increase when the overall principle of comparative advantage is
implemented by countries. This would mainly help the countries to allocate their scare
resources for producing relevant goods and services, which they should specialise in
producing. The use of comparative advantage would mainly ensure the countries to improve
the comparative cost associated with operations (Demirag, 2018). The calculation would
mainly help to detect how much productive or cost effective one country is than another.
For example:

3FINC20023
Maximum
outputs
Country
A
Country
B
CARS 29 m 34 m
TRUCKS 5 m 20 m
The above example provides explanation regarding the manufacturing process of two
countries. The information directly states that the Country A should focus on producing Cars,
while Country B should be focusing on only manufacturing Trucks, as it would improve their
cost benefits and generate high level of income from their operations.
Question 2: Differentiating between the corporate governance regimes, while detecting
its impact on stakeholders of the corporation
The comparative corporate governance regimes mainly comprise of market-based,
family-based, bank-based and government affiliated. The different type of corporate
governance regimes have adequate impact on the stakeholders of the corporation, which are
depicted as follows.
Market-based:
Corporate governance resumes that are based on market have direct characteristics of
efficient equity market where dispersed ownership is required. This kind of comparative
corporate governance regimens can be found in United States United Kingdom Canada
Australia. Market best resumes directly help the stakeholders to identify the actual interest of
the company, which could allow the stakeholders to identify the current trajectory and
positions of the organisation (Barkemeyer, Preuss & Lee, 2015).
Family-based: