International Trade and Finance Assignment: Australia & China Trade

This assignment delves into key aspects of international trade and finance, examining Australia's trade relationship with China through the lens of strategic trade theory. It explores the effectiveness of fiscal and monetary policies in managing inflation and balance of payments surpluses, advocating for flexible exchange rates. Additionally, the assignment discusses the impact of free trade and labor mobility on wage equalization in a two-country model. The solution addresses the complexities of international trade, emphasizing the importance of comparative advantage, economic policies, and exchange rate dynamics in fostering economic growth and stability. The assignment also touches on the role of the foreign exchange market, exchange rate determination, and the benefits of flexible versus fixed exchange rates, providing a comprehensive overview of international economics.

Runing head: International trade and finance
International trade and finance
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International trade and finance
Table of Contents
Question 1: Theory explaining Australia’s trade in natural resources with China? Explain
carefully......................................................................................................................................3
Question 2: Taking the context of a two-good and two-country trade model, it is argued that
two countries can equalise wage differences by either engaging in international trade in good
or allowing labour to freely move between the two countries. Discuss whether this is true or
false and explain why.................................................................................................................4
Question 3: Discuss the effectiveness of fiscal and monetary policies in resolving the issue of
inflation and balance of payment surplus. Which policy would you recommend and why......4

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International trade and finance
Question 1: Theory explaining Australia’s trade in natural resources with China?
Explain carefully
Incorporation of strategic trade theory is having potential impact on the trade
relationship among Australia and China while making decision to trade with the natural
resources. On the other hand, through the development of this trade decision regarding the
natural resources. This is important in the sense that through the use of strategic trade theory,
the development of resources is important and countries like Australia and China will be able
to identify their comparative advantage, the two countries will be helping in the development
of comparative and absolute advantage. Through the incorporation of better development of
strategy will induce the country to increase the smoothness of operation. Using the strategy
the economy will be able to induce the trade of resources only that will be required for
trading.
Now trading with china will give Australia enough advantages in the form of better
competition and better ground of investment. Being one of the fast developing nations will
indulge in the improvement in the economic theory will increase the scope of future
opportunities for Australia to increase the development of resources capitalisation and
resource mobilisation. On the other hand, it will be beneficial for the development of
equipment that will increase the smoothness of operation. Making trade with resources will
indulge in the improvement of better accessibility that will no doubt increase the benefit but
will also gain enough impact on the development of economy. It will be highly beneficial for
Australia to use the mercantilist formula to increase the trade off in obtaining the minerals
and other metals from countries like China.

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International trade and finance
Question 2: Taking the context of a two-good and two-country trade model, it is argued
that two countries can equalise wage differences by either engaging in international
trade in good or allowing labour to freely move between the two countries. Discuss
whether this is true or false and explain why
Taking the context of two good and two country trade model, it is important for the
country to increase the development of the economic activities that will increase the
effectiveness of the comparative advantages. The concept of wage equalisation will not be
possible through free trade. This is because the modern trade depends entirely on the absolute
and comparative advantage that will definitely increase the development of resources
capitalisation. Free movement of human capital will increase the level of human resources
among the two countries in the sense that through the development of equity will indulge the
development of better improvement in the economic ground.
Question 3: Discuss the effectiveness of fiscal and monetary policies in resolving the
issue of inflation and balance of payment surplus. Which policy would you recommend
and why
In order to increase the efficiency of the economy, the involvement of both fiscal and
monetary policy is important. The fiscal policy will be mainly dealing with the development
of economic variables in the form of employment, GDP growth. On the other hand, the
monetary policy will mainly dealing with the solution of inflation and balance of payments.
Now in order to mobilise the development of international trade, the roles played by the
balance of payments and inflation rate are crucial in the sense that through the development
of resources, it will be willing to indulge the development of resources. Now in order to
increase the effectiveness of inflation rate and the balance of payments is going to be
influenced heavily by flexible exchange rate. On the other hand, through the development of

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International trade and finance
better accessibility of flexible exchange rate will allow the external disequilibrium to get
fixed automatically by movements in the exchange rate.
Use of Maastricht Treaty, 1991, will indulge the monetary unions to get united and
they will serve the development of international trade in a better and effective way. Taking
the consideration of the trade improvement. On the other hand, through the development of
this treaty will increase the resources utilization but will definitely increase the development
of economic performances. On the other hand, through the involvement of better monetary
policies, the government will be mainly help in identification of resources. Both fiscal policy
and monetary policy will be helpful for the development of economic activities.