Lahti University ENTRANCE 2009/4 1 (7) of Applied Sciences EXAMINATION. DEGREE PROGRAMME IN INTERNATIONAL BUSINESS Family name Given Name (in block letters) (in Block letfers) Date of Birth Applicant number PART 1A/2009/4 MULTIPLE CHOICE STATEMENTS Alllthe statements below are based on the pre-reading intemet material. Please read the following fifteen statements cerefully and mark your correct answers on the separate ANSWER SHEET (on the sheet after the essay). Each correct answer is worth + 2 points, an incorrect and no answer are both worth 0 point. The highest total score can be 30 points; you have to earn 4 points at the minimum in order to qualify further in the admission process, 1. Environmental business Involves / a) service sector b) commercialisation of clean technologies ) non-metal industries 4) health products, 2. Environmental business needs a) strict rules. ) environmental catastrophes €) strong politicians 9) foresight. 3. Public research and development activities related to environmental technologies in Finland. 2) are spread around the country and administered by different authorities 'b) have tong traditions ) are based on hard winter conditions in Finland 4) are important due to the country's geographical location. 4. So- called lead company networks in cleantech industries a) are not necessary b) have the task of developing and testing network models for environmental technologies ©) can be easily organised 4) are supervised by local govemments. 5. When marketing the concept of “Cleantech Finland” we should stress a) cost effects ») integrated solutions e) time 4) socially progressive solutions 6. In large part global integration has been about the triumph of 2) markets over governments ) regulation over deregulation ©) prices over governments ¢) governments over marketsLahti University ENTRANCE 2009/4 2 (7) of Applied Sciences EXAMINATION 7. The challenge for emerging economies is to create a safe system of global finance that is a) more rigid b) more complex c) more flexible 9) softer 8. The largest foreign-currency reserves in emerging economies are a) Chine b) Brazil ¢) India 9) Russia 9. Which of the following statements is true 2) The freeing of trade and capital flows and the regulation of domestic industry and finance have spurred globalization ') The freeing of trade end capital flows and the deregulation of domestic industry and finance have spurred globalization ©) Restrictions on trade and capital flows and the regulation of domestic industry and finance have spurred globalization 4) None of the above 10. Due to a large current-account deficit United States is heavily dependent on a) trade barriers b) International Monetary Fund ) foreign funding 4) inflation, 11. According to the "Doing good” survey how are the smaller companies doing as compared with the big ones in sustainability issues? Choose one alternative that describes the situation best. £2) 48% of smaller companies have their sustainability policies in place which is significantly more than in big companies. ) Smaller firms focus less on the sustainability of their supply chains than the big companies do. ¢) Smaller companies constantly need to worry about becoming targets of sustainability activists. 6) 38% of smaller companies think their efforts on greenhouse gas and waste reduction is very good 2s compared with 19% of the big ones. 12. The article "Doing good” introduced the case of Fair Factories Clearinghouse (FFC) to give an ‘example of (choose the correct alternative): 2) an organisation that made social and environmental negotiations between outsourcing and supplying ‘companies public for other companies to see. ) an innovative company which started selling valuable sustainability reporting information for a profit. c) how companies investing in expensive sustainability reporting want to keep the information to themselves. ¢) how public and transparent sustainability reporting cannot be harmonized because of national differences. 13. The report "Doing good” had a case study on the mining company Anglo American to illustrate (choose the alternative which is false} 2) how social impact assessment must be made according quantifiable metrics to really understand ail the issues that matter in decision making, ) how the company has tested its socio-economic assessment toolbox (SEAT) process at three sites, in Austala, South Africa and Brazil ¢) how the SEAT experiment has proved thal useful investments are not elways expensive @) how the company board made the SEAT assessment mandatory every three years at all its operations.Lahti University ENTRANCE 2009/4 3 (7) of Applied Sciences EXAMINATION ai ct nerding to the survey "Doing good”, respondents who selected the statements below, considered theara 2m “critically important”. But which one of these statements was the least important (25°) them? 3) Compliance with regulatory and legal obligations. ») Attracting/tetaining customers concemed about environmental or social issues. €) Reducing costs, 9) Enhancing brand reputation. 16, According to the survey "Doing good”, company profitability and sustainability are linked in Aumerous ways, Which one of the following statements is correct? 2) Most of the surveyed companies feared thal investing in sustainable practices would raise their expenses ‘elative to competitors 2) Reducing energy consumption is the most common sustainabily-related policy change but stil 65% of the surveyed companies had not implemented it. 5) Savings in e.g. company process standardisation ae likely to be greater, but sill more companies should align their environmental, social and financial goals to cut costs, ©) Companies should ty to get more publicity about all the sustainability efforts they have mede to improve their reputation. ALL ENTRANCE EXAM MATERIALS MUST BE RETURNED WHEN LEAVING THE EXAM.Lahti University ENTRANCE 2009/4 4 (7) of Applied Sciences EXAMINATION PART 2/ 2009/4 - MATHEMATICS AND PROBLEM SOLVING Please answer the following twenty (20) questions. The correct answer is worth +4 point, an incorrec nd no answer are both worth 0 points. You have to earn 2 points at the minimarn in order to qualify further in the admission process. Mark your correct answers on the Separate ANSWER SHEET. Sees and share a fee that they have received. A gets 1/3, 8 gets 1/6 while C's sha is €120, Calculate the share of A. 2) €80 b) €95 c) €120 d) Other, specify on answer sheet 2 Mnco™Pany’s turnover amounted to €22.5 million last year. This year itis estimated to be €24.3, million. How many per cent will the turnover increase? 8) 1.1% b) 7.4% c) 8.0% d) Other, specify on answer sheet 3 The Cost of a book is €27.00 including 8.0% value added tax (VAT). What is the cost excluding VAT? 2) €24.84 b) €25.00 c) €29.16 d) Other, specify on answer sheet Sia20% discount is allowed on a watch that is sold at the price of €108.50. How many euros was the ‘count? 3) €32.55 b) €46.50 c) €155.00 4) Other. specify on answer sheet dosing the single percentage increase or decrease equivalent to an increase of 2% followed by a decrease of 15%, 2) -13.3% b) -13.0% ¢) -17.0% d) Other, specify on answer sheet 6. Ifthe price of a ring (R) is Increased by 20% and the price of a watch (W) is decreased by 20% the result is the same. How many per cent higher is W than R? 2) 40.0% b) 50.0% c) 60.0% d) Other, specify on answer sheet 7 Find the simple interest on a €2,000 loan at 3.0% annual interest rate for § months? 2) €25.00 b) €60.00 c) €75.00.¢) Other, specify on answer sheet 5.4 deposit of €5,500 was made on an account at the end of 2007. At the end of 2008 the balance of the account ating tne interest had boen added to the account, was €5.720, What will be the Gao of the Femain the seares 21 2008, after the interest had been added to the account, if the Inrerect rane 2) 5 980 06 ai and the interest is added to the account at the end of each year? 2) €5,940.00 b) €5,948.80 c) €6,160.00 d) Other, specify on answer sheet 8; What is the missing number (2) in this sequence 47, 38, 30, 23, 17,7 2) 14) 13 ¢) 42 4) Other, specify, 1). 328 Youwork out which number (2) comes next inthis sequence -6, 2, -2/3, 2/9, 2 2) -2/18 b) 2127 c) -2/27 d) Other, specilyLahti University ENTRANCE 2009/4 5 (7) of Applied Sciences EXAMINATION 2},Cansiou work out which letter (2) comes next inthis sequence Q, P, N, K, G, 2 2)Ab)(6 C)C 4) Other, specify 12, Solve the following equation: 16(x - 4) + §= 3x —7 say 2) x= -46)}'= 4 c)x = 5d) Other, specity on answer shee! +4 13, Evaluate 15 + 12x — 0.4x2, when x = 25 ) 85 b) 305 c) 585 4) Other, specify on answer sheet 14. Solve the following simultaneous equations: 'b) x=2, y=3 c) x=2, y=5 d) Other, specify on answer sheet 3 rhe weight of a package is 74.3 grams. How many tonnes weigh one million of these Packages? 2) 74.3 tonnes b) 743 tonnes €)74,300 tonnes d) Other, specify on answer sheet o,f "man sald: “if you multiply my age after six years by three and subtract from the result my age six Years ago again multiplied by three, you get my present age. How old aml now"? 2) 30 years b) 34 years c) 42 years d) Other, specify on answer sheet reglonn Went up a certain hill at the rate of one and a half kilometres per hour and came down atthe rate of four and a half kilometres per hour, so that it took just four hours to make the double journey. How far was itto the top of the hill? } 2) 3.0m b)&.0 km €) 8.0 km d) Other, specity on answer sheet efasgee 2 fat rate of commission of €250 onal transactions. How many dollars can be bought fo) e120 2) USD141.00 b) USD141.50 ¢) USD144.00 d) Other, specity on answer sheet what is the net pay? 2) €247.50 b) €262.50 c) €330.00 d) Other, specify on answer sheet 22. If Bob works alone he can complete a task in 27 days, and If Ann works alone she can complete the the taser” 54 d8¥S. How many days would it take for Ann and Bob working together te complete the task? 2) 9 days b) 21 days c) 40.5 days d) Other, specify on answer sheet ALL ENTRANCE EXAM. MATERIALS MUST BE RETURNED WHEN LEAVING THE EXAM,Entrance examination Degree Programme in International Businass/KuopioiVarkaus Interviewee: __ Dates. season [Social skilis ‘| 10p the applicant is open, gives room to all members of | = being considerate, eye the group, speaks clearly, proper eye contact | contact, communication, | openness | 8p the above mentioned points parly successful 1p obvious difficulties in most of the above mentioned | Motivation | 10p the applicant is clearly motivated to study business, is ~ genuine interest in business | interestéd in international business issues, understands | the impértance of intercultural skills at work pel | 8p the applicant cannot clearly show his GMb or interest is hesitant | 4p obviously not very interested in business but rather in ssc titeas: 233 5 | studying languages; ‘it would be nice to work abroad’ _ Active participation | 10p the applicant is active in expressing his or her cpinions and shows inierest in other participants’ ideas; does not dominate the group 4p the applicant is fairly active in expressing his or her opinions and is fairly considerate towards the other members of the group | | | | | 1p the applicant is too shy or too afraid of participating in | the discussion: is too dominating and takes the main role _| ‘Argumentation 0p the applicant can argue his or her points cleverly and give reasons for the opinions 5p the applicant can argue and give reasons to some | extent | 1p the applicant is very hesitant and is not able to give reasons for or justify his or her opinions. [Score /40p Note: | |toe ue ee 4 eee es i las i Read the article carefully and answer to a question below. You have got 60 minutes on reading and answering the question. What's so great about an ever closer union anyway? 20 benefits from 50 years of growing ties F Wednesday, Mar. 14, 2007 i http://worw.time.com time /magazine/artcis /0,173,1598997,00,heml e 1 | No Kidding, Peace Tt was the Americans - with the Marshall Plen, and then nato - who laid the groundwork, but the E.U. has helped to. ve Western Europe its most peaceful 60 yeers since records were first Kept. Here's the big picture: France and Germany had ‘cught 3 war in each of the three generations before the Treaty of Rome. Twice Europe's wars had sucked in the rest of the world. By locking together economies, societies and political structures, the E.U, has mate such horrors unimaninable, For that alone, give thanks. 2 | The French Countryside a Oy There has to be something to be said for the Common Agricultural Policy, and indeed there is, The timeless contours of la France profonde - at least south of the wheat and beet belt - are @ testimony to the long subsidy of French farming. The cap may offend ‘ree-trade oursts, but on a summer morning somewhere in the Docdogrie there's something to be sald for impurity 3 | Easier Travel The Oresund Bridge between Copenhagen and Malm®; the Channel Tunnel; high-speed rail links snaking out from France - all have done their ot to ‘nit the Continent closer together than ever before. But perhaps above allt is the growth of budget airlines - stimulated by regulations that came into force in 1997, allowing ‘an airine from one member state to operate 2 route in another - that has made easy travel around Europe ‘available to all 4 | Ireland's Revival EU. stucural funds aren't the only reason that the Emerald Tiger roars, and Ireland isnt the only place where money from Brussels has helped buld a modern infrastructure. But there's something about the scale of the transformation of Ireland's ecanomy since membershis in 1973 that boggles the mind, 5 | That Burgundy Passport Remember the days when your passport got scrutinised by some suspicous offical on even the most straightforward trp from Innsoruck to Bolzano? Some of us do. But since the signing of the Sciengen ‘Agreement in Luxembourg in 1985, the ‘ree movement of people has become more than an aspiration ~ and an attribute decace ope, remarkably, that has su the stuggle against terrorism of the last61 GSM or Mobile ons, but the EU. ae 1987 to adopt 2 common standard fer cigital mobile telephony gave coth the telecoms and hencset like Encsson ana Micka the sccunty of knowing chat there was 2 huge single market for their products. The consequence: @ whole naw appreciation for the virtues ofthe oppesable thumb, loca You may ct net st 7 | Work Where You Want It took years for the Treaty of Rome's dream of a single labor market to come to frution, but naw - cue joke ‘2bout Polish plumbers - the right to live, work, and indeed retre, in another Union country is established, ‘and such freedoms will gradually be extended to citizens from the £2 countries that joined since 2004. This ‘means working to the same rules, too; though national legislatures had taken the lead, the Treaty itself enshrined the principle of equal pay for equal wark for men and women, wivle the 2000 Charter of Fundamental Rights prociaims workers’ entitlements on issues from labor mobility and collective bargaining to equal opportunites. w 8 | Good News for Galicia ‘And Wales, Sardinia arid Mecklenbirg-Vorpammemn, For regions on the periphery af their nations, with proud cultures and tracitions of their own, the E.U. has been a gcdsend. The Committee of the Regions provides a political voice while the E.U.'s regional policy has ghanneled funds for projects aimed to tackle economic and social disparities within member countries. The cofsequerce? Not a Europe homogeneously harmonized, but ine that Is more diverse than ever before, 91 Cen Since 1954 the European Organization for Nudear Research on the outskits of Geneva has been in the forefront of advanced particle physics, figuring out what stuff we're made of. Bonus: Tim Berners-Lee was on the staff there when he developed a new way for scientists to share information over the Internet - the World Wide Web, 10 | The Euro ‘The single currency introduced on Jan. 1, 2092, and now used by 315 million people in 13 countries - did ‘more than eliminate those tiresome collections of small coins tat we used to bring back from vacation, By making prices transparent, the eura made tne single European market a realty. 11 | Airbus Sure, we know, the jewel of Eurcpean industrial calaboration looks pretty scratched these days as the aerospace company’s management weaknesses are exposed. And yes, “launch aid” for new planes is a ‘axpayer subsigy by any other name. But the weirdly cobbled together planes ~ wings made in Britain, tail fins in Germany - have at least ensured that there's some competition in the global commercial aviation market, and forced Boeing of the US. to raise its own game, 12 | Better Football Started as the European Cup in 1955, dominated by Real Madrid in the early years, the Champions League ow gets audiences from Minsk to Munster watching the seme images, and the final each year has become Europe's Super Bowl. Plus: te Bosman case in 1995 - where the European Court ruled that players at the ‘end of their contracts could move freely between clubs - enabled tep teams to become the collection of international talents they are now, 13 | Erasmus e Since 1987, over 1.5 milion university students have benefited from the Erasmus Eurapean exchange Program end taken comparative knowledge of local beers to unimaginec heights. The E.U.'s Lifelong Leafning Programme nas 2 $9 billion oudget for the rest seven years to develop areas such as cooperation In education palicy, studest exchanges and acult learning,14 | Tabloid Heaven, What wore the de without the consta about Europear standardization of everything reported dim that £.U, es required cr of nator ‘host of them urpaei mytns ms? Our favarite: the widely ope walkers and jugglers ta weer hard hats. 15 | The Fourth Movement of Beethoven's Ninth To tel the truth, we find the “Choral* abit crass, as symphonies go. But at least since Beethoven's tune was ‘adopted as the E.U.’s anthem in 1985, feds learn at least one bit af classical music. It would be even ricer if they knew the words of Friedrich von Schiler’s Ode to Joy. Plus: as flags go, those gold stars on a blue field make @ pretty decent one. 16 | Clean Beaches In 2005, 96% of Europe's coastal beaches were deemed clean enough for swimming, thanks to the 1976 Bathing Water Directive - toughened up last yeer - which set binding minmum water-quality standards. More. than 200 pieces of EU. environmental law, aimed at staunching toxic fumes, eliminating dangerous Pesticides, phasing out cfs, protecting birds and creating the European Environment Agency have generally ‘made the place more pleasant. ? 17 | Safer Food In 2005 French President Jacques Chirac was recorded unawares by a French journalist joking with the then German Chancellor and Russian President, “the only thing (Britain has] ever done for European agriculture is ‘mad cow disease.” His point, surely, was that food scares such as bse had the salutary effect of speeding imdves to set basic health and labeling standards. The European Food Safety Authority was established in 2002, and in 2006, foed-labeling regulations were tightened to substantiate nutritional claims like “low-fat” and “lowers cholestercl," = 48 | Taking Climate Change Ser usly Al Gore has been the Cassandra of global warming, but the E.U. was the driving force behind the 1997 Kyoto Protocol. AS part of the Kyoto process, the E.U. set up its Emissions Trading Scheme, a market to trade Pollution permits for carbon dioxide emissions, In recent months, Europe has aimed for even lower emissions Standerds through initiatives on cars and aitcraft exhaust, and has already set minimum biofuel targets, 19 | A Reason to Go to Brussels ‘We would not go so far as to say that we love the place, but the Belgian capital deserves more respect than It gets. The food and beer are great, it's developed 2 nicely cosmopolitan favor and it's more green than ‘almost any other European capital. [tis also the home of Magritte, Bruege! and Tintin, is a center of Art Nouveau and has enough Gothic architecture to co you fore lifetime, 20 | Eastward Look, the Land is Bright ‘There were times when it seemed bogged down in bureaucratic technicalities, but the decision after the fal ofthe Beriin Wall to offer membership to the former communist nations of Eastern Europe was a courageous {and generous act of leadership. There are now 11 former Soviet republics and East bloc states in the EU, ‘and the boundaries of democracy and free markets have been decisively moved East. ———————— Write an essay of 200 - 250 words giving your ow opinions based on the article above. Could success of the European Union at least partially be copied into other countries and continents worldwide? Please continue on the following page. Your answer will be graded both according to content and to your use of English 0_PART 1 Name Date of Birth: — A POINTS 7/40Please answer the following twenty (20) questions. The correct answer is worth + 1 point, an pease etand no answer are both worth 0 points. Please answer on sheet provided on the next page. You have 60 minutes to answer these. 4. A,B and C share 2 fee that they have received. A gets 1/5, 8 gets 2/4 while C's share €3,000. Calculate the share of A. otner, speaty 2) €600.00 _b) €2,000.00 ¢) €2,100.00 2. The price of a product was first increased by 10 % and then by 7 Ms, i.e, €25.20. How many per cent had the price increased altogether? nica biome (Ai77% omer soeaty 3, What is the price of which 22 % accounts for €222 4 17 Se . 44, Find the single percentage increase or decrease equivalent to a 50 % increase followed by 8 25 % decrease. , a) +25% ——_b)-25% 412.5% — ¢) Other, specify 5. Acollege course involves coursework and an end term examination. The aggregate mark for She source determined by 2 40:60 weighting between coursework and examination. 1f 9 cre Jan is given 64 per cent for coursework, what is required in the examination to obtain an aggregate mark of 50 per cent? 2)30.0% —»)40.7% ©). 36.0% ——_d) Other, specify __ 6. 10% increase in the price of petrol decreased consumption by 5 M%. How many per cent and in what direction did the sales returns change? (usm wy 50m a4 1) Other, specify _ 7. How will this sequence of numbers continue? 2, 1, 2, 3, 5, 8, 13, 24, « 224 oy ow 4) Other, specify 8. How will this sequence of numbers continue? 1, 0.5, 0.25, 0.125, a) 0.03125 by0.0625 —)0 4) Other, specify 9. How will this sequence of numbers continue? 8, -4, 2, -2, 8 bos 0s ) Other, specify _11. (27)" is equal to ae hx 12, (2X + 2)?— (4x+8)x is equal to a6 b)-Be +4 cate t2e+4 —— d) Other, specify 13. If you increase the price of a product by 375%, you have to multiply the original price by the factor ay3.75 b) 4.75 245 4) Other, specify 14. George and Vladimir invested in the stock. George earned €3,000 on an investment of €15,000. Find the return on Viadimir’s investment, if he carned twice as much as George relatively. Vladimir invested €20,000, )€000 6) €6,000-—_<)€4,000 ther, specify 415. construction job requires the labour of 15 workers for 28 days. How many workers are needed to complete the job in 8 days’ less time? ayir p19 ga ) Other, specity 116. Number 8 is three times as much as number A. On the other hand, number B is one quarter of number C. What is number A, when number C = 36? fay3 04 5 4) Other, specify 417, My basic salary plus over time salary is altogether 2,500 €. My basic salary is 2,000 € more than my over time salary. What is my basic salary? a) €1,00 —&) €2,000ce2,250—d) Other, 18, 6 kilos of oranges cost as much as 5 kilos of apples. 4 kilos of apples cost as much as 3 kilos of bananas. 2 kilos of bananas cost €2.40. What is the price for oranges per kilo? a}€050 bYED.75 J EL.OD—_) Other, specify, 19, 12 years ago I was 3 times as old as my son. Now Tam twice as old as he. How old is my son a) 12years (bY 24 years) 26 years 4) Other, specify 20. There is 80% of water and 4% of sugar in fresh apples. How many per cent of sugar is there in the same apples, when they have been dried so that the meisture content is 20%? ; « 18 aonLahti Universit ENTRANCE 2009/3 of Applied Sciences EXAMINATION DEGREE PROGRAMME IN INTERNATIONAL BUSINESS Family name Given Names. (in block letters) (in block letters) Date of Birth PART 1A/2009/MULTIPLE CHOICE STATEMENTS All the statements below are based on the printed material( TIMESonline,ADBinstitute, Economist.com) Please read the following ten statements carefully and mark your correct answers on the ‘separate ANSWER SHEET (on the sheet after the essay). Each correct answer is worth + 2 points, an incorrect and no answer are both worth 0 point. The highest total score can be 20 points. 1. Investors 1a) have faced the problem of quickly rising value of USD against all the other major currencies b) in China have sold the biggest part of their US Treasury bonds ) in oil business have now a big storage of crude oil 4) are willing to put their money only on very safe assets 2. Asian trade a) started to develop quickly in the whole area already in the1960s b) was supported by free trade associations from the beginning of the 1960s c) was developed strongly after Asian companies started to use imported technologies 4) has always been mostly Chinese trade 3. Asian trade a) has always been dominated by the electronics industry b) is not based on the companies’ own R&D-activities ‘c) has shown growing figures in the trade within Asian countries 4) has always been mostly trade with the USA 4, Asian trade a) has developed favorably when the regulations and standards have been integrated b) was not affected by the late 1990s financial crisis, c) has shown exceptionally strong growth figures in Indonesia 4d) development has started new ideas of having a common currency in the whole area 5. The roots of the current financial crisis are in a) housing and debit bubble ) deflation ) housing and credit bubble 4) inflation 6. Which of the following statements is true a) In emerging economies debt has risen much faster than foreign direct investment and equity flows 'b) In emerging economies foreign direct investment and equity flows have risen much faster than debt ©) In emerging economies debt has risen at the same pace with foreign direct investment and equity flows 4) None of the aboveLahti University ENTRANCE 2009/3 of Applied Sciences EXAMINATION PART 2/ 2009/~ MATHEMATICS AND PROBLEM SOLVING Please answer the following thirty (30) questions. The correct answer is worth +1 point, an incorrect and no answer are both worth 0 points. Mark your correct answers on the separate ANSWER SHEET. 4. A,B, and C share a fee that they have received. A gets 2/3, B gets 1/5 while C’s share is €30. Calculate the share of A. ‘a) €150 b) €170 c) €195 d) Other, specify on answer sheet 2. Acompany's turnover amounted to €12.6 million last year. This year itis estimated to be €14.3 million. How many per cent will the turnover increase? a) 17,5 % b) 15.5% c) 13,5% d) Other, specify on answer sheet 3. The cost of a good is €347.70 including 22.0% value added tax (VAT). What is the cost excluding VAT? a) €271.21 b) €285,00 c) €424.19 d) Other, specify on answer sheet 4. A25% discount is allowed on a watch that is sold at the price of €102. How many euros was the discount? a) €34.00 b) €64.00 c) €136.00 d) Other, specify on answer sheet 5. Find the single percentage increase or decrease equivalent to an increase of 5% followed by a decrease of 20%. 2) -14.0% b) -15.0% c) -16.0% d) Other, specify on answer sheet 6. Ifthe price of a ring (R) is increased by 15% and the price of a watch (W) is decreased by 10% the result is the same. How many per cent higher is W than R? 2) 27.8% b) 26.5% c) 23.7% d) Other, specify on answer sheet 7. Find the simple interest on a €5,500 loan at 6.0% annual interest rate for 8 months? ) €220.00 b) €330.00 c) €440.00 d) Other, specify on answer sheet 8. A deposit of €3,200 was made on an account at the end of 2007. At the end of 2008 the balance of the account, after the interest had been added to the account, was €3,260. What will be the balance of the account at the end of 2009, after the interest had been added to the account, if the interest rate will remain the same and the interest is added to the account at the end of each year? a) €3,360,00 b) €3,362,00 c) €3,375.00 d) Other, specify on answer sheet 9. What is the missing number (2) in this sequence 20, 19, 17, 7, 10, 5 a) 11 b) 13.c) 14 d) Other, specify, 10. Can you work out which number (7) comes next in this sequence 3, 7, 16, 35, ? a) 55 b) 70 c) 74 d) Other, specify 41. What is the missing letter (7) in this sequence A, C, F, 7, 0, U a) Jb) Ke) Ld) Other, specify 12, Solve the following equation: 18(x - 5) +5 = 3x-10 a) x= -5b) x= 5c) x = 6d) Other, specify on answer sheet1. Evaluate 15 + 12x — 0.2x2, when x = 20 a) 175,6 b) 239,2 c) 254,8 d) Other, specify on answer sheet 14, Solve the following simultaneous equations: 20x + 6y = 500 00 5 b) X=2, y=5 ¢) x= 10 d) Other, specify on answer sheet 15. The weight of a package is 74.3 grams. How many tonnes weigh one million of these packages? a) 74.3 tonnes b) 743 tonnes c) 74,300 tonnes d) Other, specify on answer sheet 16. A man said: “If you multiply my age after five years by three and subtract from the result my age five years ago again multiplied by three, you get my present age. How old am | now"? a) 24 years b) 28 years c) 30 years d) Other, specify on answer sheet 17. John went up a certain hill at the rate of one and a half kilometres per hour and came down at the rate of four and a half kilometres per hour, so that it took just four hours to make the double journey. How far was it to the top of the hill? a) 3.0 km b) 4,5 km c) 6.0 km d) Other, specify on answer sheet 18. A Bureau de Change will sell you US dollars (USD) at an exchange rate of 1.30 dollars to th euro and charges a flat rate of commission of €2.60 on all transactions. How many dollars can be bought for €1007 a) USD126.75 b) USD127.50 c) USD130.00 d) Other, specify on answer sheet 49. The basic hourly rate for a weekly paid worker is €12 and any hours above 40 are paid at €1 Tax is paid at a rate of 25% on any earnings above €120 a week. Assuming hours worked per week is 50, then what is the net pay? a) €495 b) €525 c) €660 d) Other, specify on answer sheet 20. If Bob works alone he can complete a task in 27 days, and if Ann works alone she can complete the same task in 54 days. How many days would it take for Ann and Bob working together to complete the task? 2) 9 days b) 12 days c) 18 days d) Other, specify on answer sheet a)A b)C c)D ad)F 22. What comes next in B D GK PaA b)L oR dV 23. What comes next in 8, -4, 2, a)-2b)3 0)05 d)-05 24, What comes next in 14,15,30,31,62,63, a)64 b)75 c)124 d)126 25. What comes next in 1,1,2,3,5,8,13,21, a)21 b)23 c)32 d)34 26. What come next in 1, 4,9, 16, a)17 b)19 c)25 d)38 27. Solve 2[3 — (X+1)] = -0,5X a) 2,67 b)-2,67 c) 3,2 d)-0,8 28. The price was first increased by 5 % and later by 25 %. The product was finally sold with discount of 20 the price was then 100 €. What was the original price? a) 100 € b) 95,2€ c) 85,7€ d)80,5€ 29. On a farm there are 76 animals, pigs and chickens. The total number of legs is 220. How many pigs there are? a) 26 b)30 c)34 d) 42 30. What is the total change if the price first increases by 25 % and then decreas by 20%? a) -5% b)5%c)0% d)10.% ALL ENTRANCE EXAM MATERIALS MUST BE RETURNED WHEN LEAVING THE EXAM.TIMES From The Times tune 2, 2009) Commodities and oil soar as dollar pounded Cari Mortished, World Business Editor srares sored and the dolar fel 0 its lowest level against the pound this year as the US currency bore the brunt of greater optimism about economic recovery, Fre Fr 00 closed 2 per cent higher as more positive data about the global economy lifted shares in oil, mining ane francial companies. The index closed up 88.25 points at 4,506.19, its highest since early January. the Seton the Dow Jones industrial average rose 221.11 points to close 2.8 per cent higher at 8,721.44, while ‘he SBP 500 was up 2.5 per cent at 942.85, European shares closed at their highest level since Janay 6 Sterhoa surged. buoyed by optimism about eary economic recovery and a fight of capital from safe havens ~ such Feary solar = to more risky cyclical assets, including crude oil, which rose almost $2 per barrel to $68.29 en the Newt York Mercantie Exchange. Copper, zinc and tn also joined the ral, gaining ground on the Lspdon theta Exchange after the publication of bullish manufacturing data from China, {opes of recovery is sending investors in search of higher-risk assets that will respond quickly to signals of roomie growin, Stering rose 1.5 per cent against the US currency to $1.6449, is highest level since October. ‘The upbeat mood took its toll on safe-haven assets, such as gis and US treasuries, feuizency analysts questioned whether the pound would continue its rise, cautioning that the apparent reversal in {crune might merely be a correction after an excessive fall. Paul Mackel, at HSBC. said: “I's Ines todo war green Shoots than that it [stering] was significantly undervalued at $1.35, investors wore looking to bey an underrarnen currency." Teawiny Geithner the US Treasury Secretary, sought to reassure Chinese government officials thatthe dollar oldies ald by the People’s Republic were sae. China is the biggest foreign owner of US Treasury tonde, with holdings worth $760 bition in March. Mr Geithner said: “Chinese assets are very safe” Meanwhile General Motors and Citigroup were ejected from the Dow Jones industal average after thee als from Sean exstems the technology group, wil eplace GM, with Travelers, the insurance group, taking Citigroup's place. GM will aso be removed from the S&P 500 this week, rencat¥etising eam for advertising and sponsrsip in Times Onine, The Times and The Sunday ines or lace your News narnateaar ser cating | bs | Propary Search | Used Cars| Haidays | ins, Marrages, Deaths | Subscentins | Epaper ‘News international associated websites: Gobrx Property Search| Properly Hnder ian soe Copyeght 2008 Times Newspapers Li reremenuce arene on Ties Newspapers! slandaid Terms and Condiions, Please readout Pivacy Poly To inquite about a cence Fraroeres atta tom Times Online. The Times or The Sunday Times, click here This wobste ls poOtenGs Ue acorn a ee dre a aalerea eae teratons| Lined, 1 Vagina St. London E88 THY, ls the Hong company fr Ne Nowe Iaoebore er ‘nc is registered in Engiana No1701 VAT number GO 243 shes oo aShanng deveopanentncndedge our Asa and the ac Trends in Asian Free Trade Agreements 2.1 Emergence of the Global Factory The story of developing Asia's spectacular rise from a poor underdeveloped agricultural backwater to become the global factory over a 50-year period is regarded as an economic miracle (Stiglitz 1996), In the 1960s, developing Asian economies lacked natural resources and had high levels of poverty. There seemed to be little prospect of economic advancement. Nonetheless, Asian economies had ample supplies of inexpensive, productive manpower. ‘They were also geographically close to an expanding high-income Japan, with efficient multinational corporations (MNCs) seeking to relocate production to less costly locations in East Asia. Multilateralism through the WTO framework and its predecessor, the General Agreement on Trade end Tariffs (GATT), and open regionalism—supported by unilateral liberalization—centered on Asia-Pacific Economic Cooperation (APEC), underpinned Asia's approach to international trade policy for several decades. FTAs were absent both internationally and in Asia. International, trade policy at the national level was anchored by outward-oriented development strategies, high domestic savings rates, creation of strong infrastructure, and investment in human capital. A booming world economy hunary fer labor-intensive imports from Asia, falling tariffs in developed country markets, inflows of trade-related foreign direct investment (FOI), and generous foreign aid flows also favored outward-oriented growth in asia ‘Along period of market-driven expansion of trade and FDI followed, during which Asia increasingly became the global factory. Through strategies of innovation and learning, Asian firms acquired the requisite technological capabilities to either compete internationally or become suppliers to MNCs (Hobday 1995; Mathews and Cho 2000; Wignaraja 2008). This involved Geveloping production engineering skills to use imported technologies efficiently and successfully plugging into the advanced global production networks formed by MNCs and local suppliers. As systematic innovation and learning took place at the firm level, a shift from labor-intensive exports (e4g., textiles, garments, and footwear) to more technology-intensive exports (e.9., chemicals, ships, electronics, and automobiles) occurred in Asia, Some Asian firms built deep innovative capabilities based on investments in research and development, emerging as leading firms in production networks and supply chains. Rising economic prosperity in Asia followed in the wake of rapid industrialization. As a result, three of the world's richest economies are now in Asia: Japan, Republic of Korea (hereafter Korea), and Singapore In addition, intraregional concentration of trade and FDI activities rose as production networks invelving Asian firms deepened regionally (Kimura 2006). Rising factor costs in core production locations were a prime driver. Falling regional trade barriers and logistics costs, as well as technological progress, spurred the decentralization of production networks to the most cost-effective locations. Accordingly, trade within Asia increased significantly from 37% of total trade to 54% between 1980 and 2007, led http://www adbi.org/working-paper/2009/08/04/3256.asian.fta.trends.challenges/trends.i... 7.9.2by trade in parts and components (ADB 2008), Toward the turn of the 20th century, this simple story of outward orientation and export success was punctuated by a change in the nature of Asia's international trade policy toward FTAs. 2.2 Growth of FTAs Alongside multilateralism, Asia began emphasizing FTAs as a trade policy instrument in the late 1990s and the region is today at the forefront of world FTA activity (Feridhanusetyawan 2005; Fiorentino, Crawford, and ‘Toqueboeuf 2009). Appendix Table 2 ror 173.98 |x paye} provides data from the ADB FTA Database on the number of concluded FTAs in Asia between 2000 and 2009 (as of June 2009). The number of concluded FTAs in Asia as a group increased from only 3 to S4 during that time. Of these, 40 FTAs are currently in effect. The proliferation of FTAs in Asia Is likely to be sustained: another 78 are either under negotiation or proposed. Asi ahead of the Americas in FTAS per country—on average Asia has 3.4 concluded FTAs per country compared with 2.2 for the Americas.? On the whole, Asia seems to be opting for bilateral agreements rather than more complex plurilateral ones because bilateral agreements may be easier to negotiate. Bilateral FTAs comprise 74% of the concluded FTAs, with plurilateral FTAs comprising the remainder. Four main factors underlie the recent spread of FTA initiatives in Asia: (I) deepening market-driven economic integration in Asia, (\i) European and North American economic integration, (iil) the 1997-1998 Asian financial crisis, and (iv) slow progress in the WTO Doha negotiations.* First among these is market-driven economic integration through trade, FDI, and the formation of East Asian production networks and supply ‘chains. Market-driven economic integration has begun to require further liberalization of trade and FDI and harmonization of policies, rules, and standards governing trade and FDI. East Asia's policymakers are increasingly of the view that FTAs, if given wide scope, can support ‘expanding trade and FDI activities through further elimination of cross~ border impediments, facilitation of trade and FDI, and other such harmonization efforts. Thus, FTAs can be regarded as part of a supporting policy framework for deepening production networks and supply chains formed by global MNCs and emerging Asian firms. Second, European and North American economic regionalism—including European Union (EU) expansion into central and eastern Europe, @ monetary union in the eurozone, the success of the North American Free Trade Agreement (NAFTA), and incipient moves toward a Free Trade Area of the Americas (FTAA)—has motivated East Asian FTAs. Governments fear that the two glant trading blocs of Europe and North America might dominate rule-setting in the global trading system, thereby marginalizing sla. Increasingly, policymakers have realized the need for stepping up the pace of integration to Improve international competitiveness by exploiting economies of scale and strengthening their bargaining power through a collective voice on global trade issues. FTAs can help insure against the periodic difficulties of multilateral trade liberalization, such as the recent slow progress in the WTO Doha negotiations and a perceived loss of steam in the APEC process. Third, the 1997-1998 Asian financial crisis made it clear that East Asian economies needed ta work together in the area of trade and investment in order to sustain growth and stability by addressing common challenges, hitp://www.adbi.org/working-paper/2009/08/04/3256.asian.fta.trends.challenges/trends.i... 7.9.2009Fourth, slow progress in the WTO Doha negotiations encouraged countries to consider FTAs as an alternative. Hailed as a development round to promote trade-led growth in poor countries, the WTO Doha Development Round began in Novernber 2001. The talks have largely focused on liberalization in two key areas: agriculture and non-agricultural market access. In essence, developed countries were being asked to accelerate the ace and scope of reductions in agricultural tariffs and subsidies, and developing countries were being asked to do the same with regard to tariffs for industrial goods. Seven years of formal negotiations eventually stalled in ‘mid-2008 over concerns in developing countries about safeguard measures to protect poor farmers from rising food and ail prices, However, discussions hhave continued behind the scenes. As prospects for an early deal diminished over time, pro-business Asian countries emphasized bilateral and plurilateral FTAs for the continued liberalization of trade in goods and services, as well as the adoption of the Singapore issues (i.e., trade facilitation, investment, government procurement, and competition policy), which are currently beyond the scope of the WTO. 2.3 FTA Hubs and Spokes FTA activity in Asia over the last decade has given rise to a classic hub and spoke arrangement (Hufbauer and Schott 2009). As Figure 4 { oF #3x8 )1 age] shows, the region's five largest economies have become key hubs of FTA activity, while smaller neighbors have emerged as spokes. The number of concluded FTAs includes Singapore (18), Japan (11), People's Republic of China (PRC) (10), India (9), and Korea (6), with many more FTAs under negotiation. It is noteworthy that ASEAN—with one of the oldest trade agreements in Asia—is emerging as a major regional hub linking ASEAN members with the region's larger economies. Having enacted FTAs with PRC, Japan, and Korea, ASEAN recently concluded negotiations on bilateral agreements with India and Australia and New Zealand, and is considering negotiating an FTA with the EU. The development of FTA hubs and spokes in Asia can be related to several factors, including economic size, per capita income, levels of protection, economic geography, and the production network strategies of MNCs. ‘Singapore is by far the most active Asian economy in terms of the number ‘and geographic coverage of FTAS, With its strategic location, the region's most open economy, and world-class infrastructure and logistics, the country is the regional headquarters for many leading MNCs. Singapore is seeking access to new overseas markets, particularly for services and investments. The country is @ founding member of the ASEAN Free Trade Area (AFTA) and has implemented or concluded agreements with the largest Asian economies—PRC, India, Japan, and Korea~as well as economies outside the region, including the United States (US) and Australia, The US~Singapore FTA, which has been in effect since 2004, was the first such agreement made by the US in Asia and is reputed to be a model agreement in terms of scope. http://www adbi.org/working-paper/2009/08/04/3256.asian. fta.trends.challenges/trends.i... 7.9.2009‘As a supporter of multilateralism, Japan was a latecomer to FTAs (Urata 2004), The region's first developed economy has the strongest base of giant MNCs involved in production networks and supply chains throughout Asia, (One motivation for Japan's engagement in FTAS is to provide a market- friendly and predictable regional business environment for its MNCs. Japan has rapidly implemented bilateral economic partnership agreements (EPAs) with nine countries* and an agreement with ASEAN, and is negotiating agreements with Australia, India, and Korea. ‘The two Asian giant economies, the PRC and India, are forming FTAs to ensure market access for goods and expand regional coverage for outward investment. To this end, the PRC implemented separate FTAS on goods and services with ASEAN and is now finalizing its negotiations on an investment ‘agreement. The PRC has also forged bilateral comprehensive economic partnership agreements (CEPAs) with Hong Kong, China and Macau Special Administrative Region of the People's Republic of China; FTAs with Chile and Pakistan; and is a member of the Asia-Pacific Trade Agreement (APTA). In 2008, the PRC concluded FTAs with Singapore and New Zealand. India Is a member of APTA and has a comprehensive agreement with Singapore, It also has agreements with its South Asian neighbors. Korea has agreements with members of APTA and ASEAN, and Singapore within East Asia; and with Chile and the European Free Trade Area (EFTA) countries outside East Asia. It also signed an agreement with Asia's largest trading partner, the US, in June 2007. With some exceptions, the region's poorer economies—Cambodia, Lao People's Democratic Republic (Lao POR), Viet Nam, Philippines, and Indonesia—have tended to rely on ASEAN for concluding FTAs with the region's larger economies. This may reflect weak institutional capacity, lack of resources, and limited leverage to undertake FTA negotiations in poorer economies. The ASEAN framework offers the possibilty of pooling scarce capacity and resources. Middle-income countries such as Malaysia and Thailand have emerged as regional production hubs for the auto and electronics industries, respectively. As one of the founding members of ASEAN, Thailand has entered into agreements with PRC, India, Japan, and Australia and New Zealand, ‘The geographical orientation of Asian FTAs is summarized in Figure 2 ( ror 50.28 | 1 pape |. A high degree of cross-regional orientation among some of the region’s stronger economies is visible—notably for PRC; India; Korea; Singapore; and Taipei,China, The trend toward cross-regional FTAs is even ‘more evident in Asia's proposed FTAs and those under negotiation (see Appendix Table 3 r 127.78 |2 pace} for details). It appears that Asia has a strong preference to maintain open trading relations with the rest of the world rather than becoming inward-looking (Kawai 2005). 2.4 Trade Coverage of FTAs ‘The numbers of FTAs are relatively easy to track over time, but by themselves the numbers do not indicate the importance of FTAs to economic activity or trade at the national level. It is informative to get an idea of how much of a country's world trade is covered by FTA provisions.$ This is difficult to measure because of exceptions and exclusions contained in many agreements. Furthermore, official statistics on utilization rates of FTA preferences in Asia are hard to come by and published data on the http://www. adbi.org/working-paper/2009/08/04/3256 asian. fia.trends.challenges/trends.i.._7.9.2009direction of services trade do not exist. Nevertheless, by making the bold. ‘assumption that all goods trade is covered by concluded FTAs, indicative estimates can be obtained.* Accordingly, Figure 3 | OF 44.28 | 1 gage | shows the share of an economy's bilateral trade with its FTA partners in its total trade with the world for 2000 and 2008. Two points are worth noting First, the region’s larger economies have smaller shares in 2008 than ASEAN members, highlighting the latter's greater reliance on FTAs, especially AFTA. The shares for the large economies are: Korea (44%), PRC (25%), India (23%), and Japan (11%). There Is some diversity within ASEAN, with Brunei Darussalum and Lao POR having shares in excess of 75%, and Singapore, Malaysia, and Myanmar over 50%, while others range between 35% and 48%.” Meanwhile, Taipei,China has the lowest trade coverage by FTAS at 1% Second, all Asian countries experienced a significant increase in reliance on FTAs between 2000 and 2008, reflecting the spread of FTAs throughout the region. Key Asian FTA hubs—Japan, Korea, PRC, and India—have experienced at least a quadrupling of shares over the period. Notable increases are also visible in Singapore, Thailand, and Malaysia. Download this Paper {ror 532 248) 40 vases} {previous chapter] next eh Post aComment we welcome your feedback on this publication. Post a comment. ADBI is ‘ot obliged to acknowledge or publish comments and may abridge or edit them before web posting, Comment(s) There are [0] comment(s) for this entry. Past a comment, ‘The views expressed in this paper are the views of the authors and do net necessarily reflect the views or policies of the Asian Development Bank Institute (ADB), the Asian Development Bank (ADB), its Board of Directors, oF the governments they represent. ‘ADBI does not guarantee the accuracy of the data included in this paper and accepts no esponsibility fr any consequences of thelr use. Terminology used may not necestarly 1 Back to Top (©1998-2009 Asian Development Bank Institute. All rights not expressly granted herein are reserved, http://www.adbi.org/working-paper/2009/08/04/3256 asian, fta.trends.challenges/trends.i... 7.9.2009onomist.com Page 1 of 4 SPECIAL REPORTS When fortune frowned The worst financial crisis since the Depression is redrawing the boundaries between government and markets, says Zanny Minton Beddoes (interviewed here). Will they end up in the right place? j AFTER the stockmarket crash of October 1929 it took over three years for America’s government to launch 2 series of dramatic efforts to end the Depression, starting with Roosevelt's declaration of a four-day bank holiday in March 1933. In-between, America saw the worst economic collapse in its history. Thousands of banks failed, a devastating deflation set in, output plunged by a third and unemployment rose to 25%. The Depression wreaked enormous damage across the globe, but most of all on America's economic psyche. In its aftermath the boundaries between government and markets were redrawn During the past month, littie more than a year after the financial storm first struck in August 2007, America’s government made its most dramatic interventions in financial markets since the 1930s. At the time it was not even certain that the economy was in recession and unemployment stood at 6.1%. In two tumultuous weeks the Federal Reserve and the Treasury between them nationalised the country's two mortgage giants, Fannie Mae and Freddie Mac; took over AIG, the world's largest insurance company; in effect extended government deposit insurance to $3.4 trillion in money-market funds; temporarily banned short-selling in over 900 mostly financial stocks; and, most dramatic of all, pledged to take up to $700 billion of toxic mortgage-related assets fn to its books. The Fed and the Treasury were determined to prevent the kind of banking catastrophe that precipitated the Depression. Shell-shocked lawmakers cavilled, but Congress and the administration eventually agreed. The landscape of American finance has been radically changed. The independent investment bank—a quintessential Wall Street animal that relied on high leverage and wholesale funding—is now all but extinct. Lehman Brothers has gone bust; Bear Stearns and Merrill Lynch have been swallowed by commercial banks; ‘and Goldman Sachs and Morgan Stanley have become commercial banks themselves. The "shadow banking system”—the money-market funds, securities dealers, hedge funds and the other non-bank financial institutions that defined deregulated American finance—is metamorphosing at lightning speed. And in litle more than three weeks America’s government, all told, expanded its gross liabilities by more than $1 trilion— ‘almost twice as much as the cost so far of the Iraq war. Beyond that, few things are certain. In late September the turmoll spread and intensified. Money markets seized up across the globe as banks refused to lend to each other. Five European banks failed and European governments fell over themselves to prop up their banking systems with rescues and guarantees, As this hitp://www.economist.com/specialreports/PrinterFriendly.cfm?story_id=12373696 3.6.2009eeouunust.cout rage 2 0) special report went to press, it was too soon to declare the crisis contained. Anatomy of a collapse ‘That crisis has its roots in the biggest housing and credit bubble in history. America’s house prices, on average, are down by almost a fifth. Many analysts expect another 10% drop across the country, which would bring the cumulative decline in nominal house prices close to that during the Depression. Other countries may fare even worse. In Britain, for instance, households are even more indebted than in America, house prices rose faster and have so far fallen by less. On a quarterly basis prices are now falling in at least half the 20 countries in The Economist's house-price index. The credit losses on the mortgages that financed these houses and on the pyramids of complicated debt products built on top of them are still mounting. In its latest calculations the IMF reckons that worldwide losses (on debt originated in America (primarily related to mortgages) will reach $1.4 trillion, up by almost half from its previous estimate of $945 billion in April, So far some $760 billion has been written down by the banks, insurance companies, hedge funds and others that own the debt. Globally, banks alone have reported just under $600 billion of credit-related losses and have raised some $430 billion in new capital. 1tis already clear that many more write-downs lie ahead. The demise of the investment banks, with their far higher gearing, as well as deleveraging among hedge funds and others in the shadow- banking system will add to a global credit contraction of many trillions of doliars. The IMF's "base case” is that ‘American and European banks will shed some $10 trillion of assets, equivalent to 14.5% of their stock of bank credit in 2009. In America overall credit growth will slow to below 1%, down from a post-war annual average ‘of 9%. That alone could drag Western economies’ growth rates down by 1.5 percentage points. Without government action along the lines of America’s $700 billion plan, the IMF reckons credit could shrink by 7.3% in America, 6.3% in Britain and 4.5% in the rest of Europe. Much of the rich world is already in recession, partly because of tighter credit and partly because of the surge In oll prices earlier this year. Output is falling in Britain, France, Germany and Japan. Judging by the pace of Job losses and the weakness of consumer spending, America’s economy is also shrinking ‘The average downturn after recent banking crises in rich countries lasted four years as banks retrenched and debt-laden households and firms were forced to save more. This time firms are in relatively good shape, but households, particularly in Britain and America, have piled up unprecedented debts, And because the asset and credit bubbles formed in many countries simultaneously, the hangover this time may well be worse. But history teaches an important lesson: that big banking crises are ultimately solved by throwing in large dollops of public money, and that early and decisive government action, whether to recapitalise banks or take on troubled debts, can minimise the cost to the taxpayer and the damage to the economy. For example, Sweden quickly took over its failed banks after a property bust in the early 1990s and recovered relatively fast. By contrast, Japan took a decade to recover from a financial bust that ultimately cost its taxpayers a sum equivalent to 24% of GDP. Allin all, America’s government has put some 7% of GDP on the line, a vast amount of money but well below the 16% of GDP that the average systemic banking crisis (if there is Such a thing) ultimately costs the public urse. Just how America’s proposed Troubled Asset Relief Programme (TARP) will work is still unclear. The ‘Treasury plans to buy huge amounts of distressed debt using a reverse auction process, where banks offer to sell at 2 price and the government buys from the lowest price upwards. The complexities of thousands of different mortgage-backed assets will make this hard. If direct bank recapitalisation is still needed, the ‘Treasury can do that too. The main point is that America is prepared to act, and act decisively. For the time being, that offers a reason for optimism. So, too, does the relative strength of the biggest emerging markets, particularly China. These economies are not as “decoupled” from the rich world's travails as they once seemed. Their stockmarkets have plunged and many currencies have fallen sharply. Domestic demand in much of the emerging world is slowing but not collapsing. The IMF expects emerging economies, led by China, to graw by 6.9% in 2008 and 6.1% in 2009. That will cushion the worid economy but may not save it from recession. Another short-term fillip comes from the recent plunge in commodity prices, particularly oil. During the first year of the financial crisis the boom in commodities that had been building up for five years became a headlong surge. In the year to July the price of oil almost doubled. The Economist's food-price index jumped by nearly 55% hitp://ww.economist.com/specialreports/PrinterFriendly.cfm?stor id=12373696 36.2009bnomist.com Page 5 ot4 (see chart 1). These enormous increases pushed up consumer prices Sos the globe. In uly average headline ination wa over 4ee in L Combustble material rch counties and almort 3% in emerging economies, fr higher than | erauassesemey ps crt central bankers targets (see cho 2) Be High an rising inaton oe coupled with franc aa ae weakness left central Danger signals cee] Sate =a bankers with perplexing and poisonous trade-offs. They could tighten monetary policy to prevent higher Inflation becoming entrenched (as the European Central Bank did), or they could cut interest rates to cushion financial weakness (as the Fed did) That dilemma is now disappearing. Thanks to the sharp fall in commodity prices, headline consumer prices seem to have peaked and the immediate inflation risk has abated, particularly in weak and financially stressed rich economies. If oil prices stay at today’s levels, headline consumer-price inflation in America may fall below 1% by the middle of next year. Rather than fretting about inflation, policymakers may soon be worrying about deflation. verging excel, ‘The trouble Is that because of its large current-account deficit America Is heavily reliant on foreign funding. It has the advantage that the dollar is the world’s reserve currency, and as the financial turmoil has spread the dollar has strengthened. But today’s crisis Is also testing many of the foundations on which foreigners’ faith in the dollar is based, such as limited government and stable capital markets. If foreigners ever flee the dollar, ‘America will face the twin nightmares that haunt emerging countries in a financial collapse: simultaneous banking and currency crises. America’s debts, unlike those in many emerging economies, are denominated in Its own currency, but a collapse of the dollar would still be a catastrophe. Tipping point What will be the long-term effect of this mess on the global economy? Predicting the consequences of an unfinished crisis is perilous. But itis already clear that, even in the absence of a calamity, the direction of globalisation will change. For the past two decades the growing integration of the world economy has coincided with the intellectual ascent of the Anglo-Saxon brand of free-market capitalism, with America as its cheerleader. The freeing of trade and capital flows and the deregulation of domestic industry and finance have both spurred globalisation and come to symbolise it. Global integration, in large part, has been about the triumph of markets over governments. That process Is now being reversed in three important ways. First, Western finance will be re-regulated. At a minimum, the most freewheeling areas of modern finance, such as the $55 trillion market for credit derivatives, will be brought into the regulatory orbit. Rules on capital will be overhauled to reduce leverage and enhance the system's resilience. America's labyrinth of overlapping regulators will be reordered. How much control will be imposed will depend less on ideology (both of America’s presidential candidates have promised reform) than on the severity of the economic downturn. The 1980s savings-and-loan crisis amounted to a sizeable banking bust, but because it did not result in an economic catastrophe, the regulatory consequences were modest. The Depression, in contrast, not only refashioned the structure of American finance but brought regulation to whole swathes of the economy. ‘That leads to the second point: the balance between state and market Is changing in areas other than finance. For many countries a more momentous shock over the past couple of years has been the soaring price of ‘commodities, which politicians have also blamed on financial speculation. The food-price spike in late 2007 and early 2008 caused riots in some 30 countries. In response, governments across the emerging world extended thelr reach, increasing subsidies, fixing prices, banning exports of key commodities and, in India’s case, restricting futures trading. Concern about food security, particularly in India and China, was one of the main reasons why the Doha round of trade negotiations collapsed this summer. Third, America is losing economic clout and intellectual authority. Just as emerging economies are shaping the direction of global trade, so they will increasingly shape the future of finance. That is particularly true of capital-rich creditor countries such as China. Deleveraging in Western economies will be less painful if savings- Fich Asian countries and oil-exporters inject more capital. influence will increase along with economic heft. China’s vice-premier, Wang Qishan, reportedly told his American counterparts at a recent Sino-American http://www. economist.com/specialreports/PrinterFriendly.cfm?story_id=12373696 3.6.2009eenuiiuist cus rage 4 urs ‘summit that "the teachers now have some problems.” The enduring attraction of markets The big question is what lessons the emerging students—and the disgraced teacher—should learn from recent events. How far should the balance between governments and markets shift? This special report will argue that although some rebalancing is needed, particularly in financial regulation, where innovation outpaced a sclerotic supervisory regime, it would be a mistake to bleme today’s mess only, or even mainly, on modern finance and “free-market fundamentalism”. Speculative excesses existed centuries before securitisation was invented, and governments bear direct responsibility for some of today’s troubles. Misguided subsidies, on everything from biofuels to mortgage interest, have distorted markets. Loose monetary policy helped to inflate a global credit bubble. Provocative as it may sound in today’s febrile and dangerous climate, freer and more flexible markets will stl do more for the world economy than the heavy hand of government. Copyright © 2009 The Economist Newspaper and The Economist Group. Al rights reserved hitp://www.economist.com/specialreports/PrinterFriendly.cfin?story_id=12373696