1. How do the theories of absolute advantage and comparative differ? 2. In the public debate over ratification of the North American Free Trade Agreement, Ross Perot said he heard a “giant sucking sound” from US jobs headed South because of low wage rates in Mexico. Using the theory of comparative advantage, discuss whether Perot’s fears are valid 3. Hyundai decided to build a new automobile assembly plant in Alabama. a) What factors do you think Hyundai considered in selecting Alabama as the site for the factory? b) Who benefits and who loses from the new plant in Alabama? c) Is the firm’s decision to build the new plant consistent with Dunning’s electric theory? 4. Describe the differences between a fixed exchange rate system and a flexible exchange rate system. 5. Under what conditions might a country devalue its currency today? 6. Are there any circumstances under which a country might want to increase its currency’s value? 7. How are prices established in foreign exchange market? 8. Discuss the major types of arbitrage activities that affect the foreign exchange market. 9. Suppose the spot pound and the 90-day forward pound are both selling for $1.65 while US interest rates are 10 percent and British interest rates are 6 percent. Using the covered-interest arbitrage theory, describe what will happen to the spot price of pound the 90-day forward price of the pound, interest rates in the United States, and interest rates in the United Kingdom when arbitrageurs enter the market.