International Trade and Exchange Rate

Topics: International trade, World Trade Organization, Free trade Pages: 4 (1038 words) Published: May 25, 2013
CHAPTER 12:
INTERNATIONAL TRADE AND EXCHANGE

International trade - is the exchange of goods and services between countries. Export - A product that is sold to the global market
Import - A product that is bought from the global market
Comparative Advantage – a lower relative or comparative opportunity cost than that of another person, producer or country. Terms of Trade- the rate at which units of one product can be exchanged for units of another product. Foreign Exchange Market – a market at which foreign currencies are exchanged and relative currency prices are established. Exchange rates- rates at which national currencies trade for one another. Depreciation – a decrease in the value of a currency relative to another currency. Appreciation– an increase in the value of a currency relative to another currency. GENERALIZATIONS IN EXCHANGE RATE

* If the demand for nation’s currency increases the currency will appreciate and depreciate when it declines. * If the supply of a nation’s currency increases the currency will depreciate and appreciate when it decreases. * If a nations currency appreciates, some foreign currency depreciate relative to it.

DETERMINANTS OF EXCHANGE RATES
* Tastes
* Relative Income
* Relative Price Level
* Relative Interest Rates
* Changes in Relative Expected Returns on Stocks, Real Estate, and Production Facilities * Speculations
TRADE PROTECTIONS AND SUBSIDIES
* Tariffs- Taxes imposed by a nation on imported goods.
* Import Quotas- limits imposed by nations on the quantities of goods that may be imported during some period of time. * Nontariff Barriers- all impediments other than protective tariffs that nations establish to impede imports, including import quotas, licensing requirements, unreasonable product quality standard * Voluntary Export Restriction (VER)- an agreement by countries or foreign firms to limit their export to a certain foreign nation to avoid enactment of formal...
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