(a)[2]
State one similarity between a customs union and a free trade area, and one difference between them.
(b)
- Compare how the Mexican and Argentine exchange rates behaved against the US$ during the period shown in Fig. 1. [2]
- Explain one possible cause of the trend in the Mexican exchange rate during 1999. [2]
- Explain how the fixed level of the Argentine exchange rate could have been maintained. [3]
(c)
- Compare Mexico’s and Argentina’s inflation experience in the period shown in Fig. 2. [2]
- Explain how Mexico’s inflation rate may have affected the movement of its exchange rate. [3]
(d)[6]
Discuss whether devaluation of a country’s exchange rate will always improve its balance of trade position.