Multinational corporations seek to source inputs and locate production where costs are lower and profits higher, allowing them to take advantage of economic differences between countries. However, this can also disadvantage some domestic industries and workers in higher cost countries. Currency depreciation in international trade can make exports cheaper and imports more expensive, improving the trade balance but also risking inflation from more expensive imports. In the pre-1870s international monetary system, the exchange rate between the U.S. dollar and German mark would be $30 per mark, as the dollar was pegged to gold at $30 per ounce and the mark was pegged to silver at 1 mark per ounce with silver valued at the same rate as gold.

1. II Explain in Detail and support with appropriate examplet wherever possible 1. In a highly
integrated financial markets the multinational corporations efforts are to source inputs 1. in a highly
integrated financial markets the multinational corporations efforts are to source ingets and locate
production anywhere where costs are lower and profits higher. Discuss the advantage along with
the disadvantages for the same [3 Marks] b. Evaluate the effects of currency depreciation in
international trade [ 3 Marks] 2.a) Prior to the 1870s, both gold and silver were used as
international means of payment and the exchange rates among currencies were determined by
either their gold or silver contents. Suppose that the dollar was pegged to gold at $30 per ounce,
the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of
silver, and the Geman mark pegged to silver at 1 mark per ounce of silver. What would the
exchange rate between the U.S. dollar and German mark be under this system? [1 Mark]