Answer 1: 

One of the main objectives of investors while investing is to earn maximum return on such investment. Similarly, one of the primary objectives of China to invest in USA is to earn significant return on its investment. However; considering that investment between two countries are often based on other important factors apart from returns it is important to understand that China for long is trying to take the place of USA as the largest economy in the world and control the world economic affairs and be the global economic leader. Thus; investing in USA and amassing huge reserve of US dollars are important tools in the hands of China to achieve its desired objectives of becoming the world leader in economic and finance.

The decision of US companies to invest heavily in China however; mainly economic and business oriented. Companies mainly look to invest in countries or places where the cost of operation is minimum. Considering China offers great business infrastructure and environment it is suitable for businesses to invest in the country. Further availability of resources including low cost of human resources make China extremely attractive investment destination for the companies across the globe. Hence; large number of US companies is investing in China.       

Answer 2: 

For such LDC’s the best option would be to use extensive training and education programs to develop the skills of the labor force of the countries. By developing the skills of the existing labor force it would be possible to create a pool of skilled workers and labors within the countries. Subsequent to the development of skills amongst the workers and labor force the countries should be advised to concentrate on providing services till the infrastructure within the countries for production is developed.

Since there is no procedure or way to develop natural resources in such countries hence; concentrating on providing services and building the economy on the basis of services is the only option for such LDCs. The workforce and labor force shall be developed keeping in mind the limitations of the countries. Thus, developing and building economy by mainly focusing on services is the main advice for such LDCs.

The LDCs shall comply with the guidelines of linear stages of growth model to improve the overall economy of the country. Considering that LDCs lack capital, skilled workers as well natural resources hence; the economic policy of the countries shall be mainly based on the service sectors of these countries.     

Answer 3: 

It is important to note that fixed exchange rate system is effective for a country only if the exchange rate is in its favor. Thus, a system of fixed exchange rates can be a handicap for a country and its economy if the same is not in its favor. Thus, the reason that most countries use flexible exchange rates because the changes in exchange rates can be both favorable and unfavorable that set off the difference between foreign exchange rate fluctuations.

As an Australian exporter it would always be desirable to have a flexible exchange rates system that fluctuate and results in depreciation of Australian countries against other currencies. The fixed exchange rates are good for a country overall only when the exchange rates are in favor of the country however; the exporters would gain most when the Australian dollars depreciate against the foreign currencies where the exporters have exported their products and services.   

Greater stability is achieved in a system with fixed exchange rates in relation to the prices of import and export. Thus, the probability of currency devaluation reduces significantly in a fixed exchange rates system and also helps the government of a country to keep inflation rates within the targets set in the fiscal policy.   Thus, China uses fixed exchange rates system to avail all these benefits. Further, China is using a fixed exchange rate system to completely to minimize the risk of exchange rate fluctuation in foreign trade.

Answer 4: 

Particulars	Amount
Aus$	1,00,000.00
Add: Interest @0.10%	100.00
Amount to be repaid after 1 year	1,00,100.00
US $	77,200.00
After 1 year US $ to be used to buy Aus Dollar	1,02,796.27
Less; Aus dollar to be repaid	1,00,100.00
Arbitrage gain	2,696.27

 

Thus, yes it would recommended to the company to borrow Australian dollar 100,000 today to invest in US dollar as there is an opportunity to make an arbitrage gain of Australian dollar 2,696.27 in a year as can be seen from the above calculation.   

Answer 5:

Even though welfare measures taken by the government including financial stimulating packages to deal with the adverse impact of Covvid-19 will further increase the deficit in balance of payments but still the government would be advised to continue providing financial assistance and launch number of social welfare programs to minimize the adverse impact of covid-19 on the overall economy of a country. Financial stimulating packages will help the economy to recover from recession as demands would be created leading to greater production to take the economy out of recession.  

Expansionary financial strategy is expected to help development to a sound monetary level, which is needed during the business cycle's contractionary period. The public authority looks to diminish joblessness, raise buyer interest, and stop the downturn. When a downturn has emerged, it plans to end the downturn and forestalls wretchedness.

Curtailing corporate government expenditures put more cash under the control of organizations, which the public authority expectations would be redirected into new ventures and developing business. Tax reductions produce work along these lines, so if the organization as of now has sufficient money, it can utilize the slice to repurchase stocks or buy new organizations.

Thus, the government of a country currently languishing with the adverse effects of covid-19 and is in recession will have to use all possible means to take the economy out of recession at present. In the long term period these measures will reduce the deficit in balance of payments.

The fiscal policy of the government shall be modified and adjusted in accordance with the current economic situation to ensure that the economy not only recovers in the earliest possible time but also results in reduction in deficit in balance of payments of the country.  

Following steps must be taken immediately to deal with the recession and adverse balance of payment situation of the country:

1. Reducing the amount of debt to reduce the expenditures of the govt. in the future.
2. Taking all necessary steps to boost emergency savings immediately.
3. Taking necessary steps and measures to cut unnecessary expenditures and unplanned expenditures of the govt.
4. Modifying fiscal policy keeping an eye on the long term future.
5. Identification of risk tolerance level of the country and making changes accordingly.
6. Invest in education and training to develop skills within the workforce.