From CFA Mock 2014 Afternoon:
She warns Banantoumou that Sagara could fall prey to a resource curse known as the Dutch disease. As demand from the tire factory drives up the price of rubber, capital flows out of the country and the local currency could depreciate rapidly. This situation can be prevented if foreign investors are allowed to own rubber plantations directly rather than just having access through international markets.
N’Diarra’s warning regarding the resource curse and its prevention is most likely incorrect with respect to:
A. her comments about both currency depreciation and direct ownership of rubber plantations.
B. her comment about currency depreciation.
C. her comment about owning rubber plantations directly.
Answer = A
CFA Level II
“Economic Growth and the Investment Decision,” Paul Kutasovic
Sections 4.5
Both her comments are incorrect. In the Dutch disease scenario, currency appreciation driven by strong export demand for resources makes other segments of the economy, in particular manufacturing, globally uncompetitive. She is also incorrect regarding direct ownership of the rubber plantations by foreigners; access to natural resources is essential but ownership is not.
She warns Banantoumou that Sagara could fall prey to a resource curse known as the Dutch disease. As demand from the tire factory drives up the price of rubber, capital flows out of the country and the local currency could depreciate rapidly. This situation can be prevented if foreign investors are allowed to own rubber plantations directly rather than just having access through international markets.
N’Diarra’s warning regarding the resource curse and its prevention is most likely incorrect with respect to:
A. her comments about both currency depreciation and direct ownership of rubber plantations.
B. her comment about currency depreciation.
C. her comment about owning rubber plantations directly.
Answer = A
CFA Level II
“Economic Growth and the Investment Decision,” Paul Kutasovic
Sections 4.5
Both her comments are incorrect. In the Dutch disease scenario, currency appreciation driven by strong export demand for resources makes other segments of the economy, in particular manufacturing, globally uncompetitive. She is also incorrect regarding direct ownership of the rubber plantations by foreigners; access to natural resources is essential but ownership is not.
- Appreciate it if someone can explain why the bolded statement stands please, while I understand that a country may not propser even if it owns natural resources, it could do well if it has ACCESS to natural resources too. But why foreigners in this context?