International Trade

Question	Answer
International trade	the exchange of goods and services across international boundaries.
open vs closed economy	Any country that participates in IT can be described as being 'Open'
Reasons for International Trade: Scarcity of Resources	Some countries may have natural or human resources available to them that is unavailable in others parts of the world
Reasons for International Trade: Specialisation	some countries will have capabilities of producing certain goods and services more efficiently and at a lower cost
Reasons for International Trade: Earn Foreign Exchange	the foreign exchange earned from international trade can be used to purchase imports
Reasons for International Trade: larger Market Size	the market is no longer limited locally because producers have access to foreign markets.
Reasons ofr International Trade: Greater variety of good	consumers will now have access to product and services which may not be available on the domestic market
Reasons against IT: Unfair competition to infant industries	Industries which are in the primary stages of development may find it difficult to compete with well-established foreign competitors
Reasons against IT: Dumping	If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product
Reasons against IT: Current Account Deficits	current account deficits occur when there are more outflows than inflows of foreign exchange
Reasons against IT: 4. Growing dependency on essential imports	some countries become overly reliant on the supply of essential resources from other countries such as food
Reasons against IT: Depletion of non-renewable resources	to satisfy the demands of the international markets some countries may not have sustainable business practices
Protectionism (Barriers to trade)	measures taken by the government to protect domestic economy from the negative impacts of international trade.
Barriers to Trade: Tariffs & Customs duties	these are taxes imposed on imports to raise the price close to local good
Barriers to Trade: Quota	a limitation on the number of goods and services that can be imported
Barriers to Trade: Embargo	to the total ban on the import of a product
Other Protectionism tools: Subsidies	financial assistance to reduce the cost of production of locally produced goods to compete
Other Protectionism tools: Restricting import liscense	controlling or restricting the approval of the number of people who have import licenses will reduce the amount of imports into a country
Other Protectionism tools: Devaluation	the fall in the value of a country’s currency thus increasing the 'price' of imports and decreasing the 'price' of exports
Other Protectionism tools: Exchange Control	The Central Bank controls the supply of foreign exchange to pay foreign suppliers
Balance of Payments	the record of all payments and monetary transactions between a country and the rest of the world for a given period of time, usually one year
Deficit (unfavourable) balance	When outflows are greater than inflows
Surplus (favourable) balance	When inflows are greater than outflows
The Current Account	visible and invisible exports and imports
visible trade	all tangible products aka merchandise trade
invisible trade	all intangible trade. Consists of sections: Services, Income & Transfers
transfers	‘one-way’ transactions made without receiving something of economic value in return. donations, financial gifts or international aid
income	salaries of expatriates, dividend payments any factor incomes
Balance of Trade	also called the merchandise balance or the visible balance. It records transaction in VISIBLE exports and visible imports ONLY
The Capital Account	The capital account records all inflows and outflows of financial capital. Official and private capital flows
Official Capital Flows	transfers of capital relating to government transaction. Including borrowing from abroad to finance government expenditure
Private Capital Flows	capital funds transferred from one country to another e.g. foreign direct investment (FDI)
Official Reserve/Financing Account	This section records how a deficit or surplus was financed. the government’s store of foreign currency held by the central bank of a country.
Impact of Balance of Trade deficit: 1. Depletion of foreign exchange reserves	this could lead to a shortage of supply of foreign exchange available to the economy.
Impact of Balance of Trade deficit: Increased government borrowing	the impact of increased borrowing is an increased debt burden
Impact of Balance of Trade deficit: Unemployment	there will be a reduction in employment since wants are being satisfied by importation.
Impact of Balance of Trade deficit: 4. Improvement in the standard of living	now have access to a wider variety of goods and services for a more competitive price
Impact of Balance of Trade deficit: Currency Depreciation	A trade deficit can lead to currency weakness and higher imported inflation
Balance of Trade Surplus Impact:	1
Balance of Trade Surplus Impact:	2
Balance of Trade Surplus Impact:	3
Balance of Trade Surplus Impact:	4

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	Created by Nikolas Reece over 8 years ago