Table of Contents

1. INTRODUCTION...............................................................................................................................2

1.1. Objectives....................................................................................................................................3

1.1.1. General................................................................................................................................3

1.1.2. Specifics..............................................................................................................................3

2. INTERNATIONAL TRADE...............................................................................................................4

2.1. Trade............................................................................................................................................4

2.1.1. Key Takeaways....................................................................................................................4

2.2. Balance of payments....................................................................................................................5

2.2.1. Understanding the Balance of Payments (BOP)...................................................................5

2.2.2. Key Takeaways....................................................................................................................5

2.2.3. Economic Policy and the Balance of Payments...................................................................6

2.3. Rules and trade policies...............................................................................................................6

2.3.1. Principle of international trade law......................................................................................7

2.3.2. Key Takeaways....................................................................................................................8

3. CONCLUSION.................................................................................................................................12

3.1. Bibliographic References...........................................................................................................13

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1. INTRODUCTION
International Trade refers to the exchange of products and services from one country to another.
In other words, imports and exports. International trade consists of goods and services moving in
two directions: Imports – flowing into a country from abroad and Exports – flowing out of a
country and sold overseas.

Visible trade refers to the buying and selling of goods – solid, tangible things – between
countries. Invisible trade, on the other hand, refers to services. Most economists globally agree
that international trade helps boost nations’ wealth.

When a person or company purchases a cheaper product or service from another country, living
standards in both nations rise. There are several reasons why we buy things from foreign
suppliers. Perhaps, the imported options are cheaper. Their quality may also be better, as well as
their availability.

The exporter also benefits from sales that would not be possible if it solely sold to its own
market. The exporter may also earn foreign currency. It can subsequently use that foreign
currency to import things. The term ‘commerce’ is often (not always) used when referring to the
buying and selling of goods and services internationally.

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1.1. Objectives

1.1.1. General

 To Analyze an approach about international trade.

1.1.2. Specifics

 To define the concept of trade;

 To describe balance of payments;

 To identify rules and trade policies.

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2. INTERNATIONAL TRADE

2.1. Trade
Trade is a basic economic concept involving the buying and selling of goods and services, with
compensation paid by a buyer to a seller, or the exchange of goods or services between parties.
Trade can take place within an economy between producers and consumers. International trade
allows countries to expand markets for both goods and services that otherwise may not have
been available to it. As a result of international trade, the market contains greater competition
and therefore, more competitive prices, which brings a cheaper product home to the consumer
(Hayes, 2020).

In financial markets, trading refers to the buying and selling of securities, such as the purchase of
stock on the floor (Hayes, 2020).

2.1.1. Key Takeaways

 Trade broadly refers to exchanging goods and services, most often in return for money.
 Trade may take place within a country, or between trading nations. For international trade,
the theory of comparative advantage predicts that trade is beneficial to all parties, although
critics argue that in reality it leads to stratification among countries.
 Economists advocate for free trade between nations, but protectionism such as tariffs may
present themselves due to political motives, for instance with 'trade wars'.

Trade broadly refers to transactions ranging in complexity from the exchange of baseball cards
between collectors to multinational policies setting protocols for imports and exports between
countries. Regardless of the complexity of the transaction, trading is facilitated through three
primary types of exchanges (Hayes, 2020).

Trading globally between nations allows consumers and countries to be exposed to goods and
services not available in their own countries. Almost every kind of product can be found on the
international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies, and water.
Services are also traded: tourism, banking, consulting, and transportation. A product that is sold
to the global market is an export, and a product that is bought from the global market is

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an import. Imports and exports are accounted for in a country's current account in the balance of
payments (Hayes, 2020).

2.2. Balance of payments

The balance of payments (BOP) is a statement of all transactions made between entities in one
country and the rest of the world over a defined period of time, such as a quarter or a year
(Kenton, 2020).

2.2.1. Understanding the Balance of Payments (BOP)

The balance of payments (BOP), also known as balance of international payments, summarizes
all transactions that a country's individuals, companies, and government bodies complete with
individuals, companies, and government bodies outside the country. These transactions consist of
imports and exports of goods, services, and capital, as well as transfer payments, such as foreign
aid and remittances (2020).

2.2.2. Key Takeaways

 The balance of payments include both the current account and capital account.
 The current account includes a nation's net trade in goods and services, its net earnings on
cross-border investments, and its net transfer payments.
 The capital account consists of a nation's transactions in financial instruments and central
bank reserves.
 The sum of all transactions recorded in the balance of payments should be zero; however,
exchange rate fluctuations and differences in accounting practices may hinder this in
practice.

A country's balance of payments and its net international investment position together constitute
its international accounts (Kenton, 2020).

The balance of payments divides transactions in two accounts: the current account and the capital
account. Sometimes the capital account is called the financial account, with a separate, usually
very small, capital account listed separately. The current account includes transactions in goods,
services, investment income, and current transfers. The capital account, broadly defined, includes
transactions in financial instruments and central bank reserves. Narrowly defined, it includes
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only transactions in financial instruments. The current account is included in calculations of
national output, while the capital account is not (Kenton, 2020).

The sum of all transactions recorded in the balance of payments must be zero, as long as the
capital account is defined broadly. The reason is that every credit appearing in the current
account has a corresponding debit in the capital account, and vice-versa. If a country exports an
item (a current account transaction), it effectively imports foreign capital when that item is paid
for (a capital account transaction) (Kenton, 2020).

If a country cannot fund its imports through exports of capital, it must do so by running down its
reserves. This situation is often referred to as a balance of payments deficit, using the narrow
definition of the capital account that excludes central bank reserves. In reality, however, the
broadly defined balance of payments must add up to zero by definition. In practice, statistical
discrepancies arise due to the difficulty of accurately counting every transaction between an
economy and the rest of the world, including discrepancies caused by foreign currency
translations (Kenton, 2020).

2.2.3. Economic Policy and the Balance of Payments

Balance of payments and international investment position data are critical in formulating
national and international economic policy. Certain aspects of the balance of payments data, such
as payment imbalances and foreign direct investment, are key issues that a nation's policymakers
seek to address (Kenton, 2020).

Economic policies are often targeted at specific objectives that, in turn, impact the balance of
payments. For example, one country might adopt policies specifically designed to attract foreign
investment in a particular sector, while another might attempt to keep its currency at an
artificially low level in order to stimulate exports and build up its currency reserves. The impact
of these policies is ultimately captured in the balance of payments data (Kenton, 2020).

2.3. Rules and trade policies

Trade policies, in general, define the standards, goals, and rules and regulations of trade
agreements between countries. Such policies are specific to each individual country, being
determined by the country’s public officials. In some cases, they are employed to protect and

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promote local businesses. They can also be set up to promote the importing of certain goods,
while having an embargo on others.

National trade policy is the formulation of each country’s policies on trade. They are
implemented to accommodate the people living in the country and ensure their best interests.
These policies can also reflect embargoes and other trade barriers that are in place. Bilateral trade
policies are formed between 2 nations to regulate business and trade relations between them.
Naturally, the policy must be beneficial to both parties for the most effective outcome. To form
such a policy, both countries’ national trade policies are considered to find a golden midway that
will work for both involved parties.

The international trade policies are determined by international economic organizations,

including the Organization for Economic Cooperation and Development (OECD), the World
Trade Organization (WTO), and the International Monetary Fund (IMF). These organizations
define the international trade policies to uphold the best interests for developed and developing
countries’ economies and financial growth. Therefore, these policies are aimed to stimulate
international and cross-border trade. However, there are still various operational and compliance
challenges which these trade policies do not always address.

2.3.1. Principle of international trade law

National Treatment Principle: Imported and locally-produced goods should be treated equally —
at least after the foreign goods have entered the market. The same should apply to foreign and
domestic services, and to foreign and local trademarks, copyrights and patents. These principles
apply to trade in goods, trade in services as well as trade related aspects of intellectual property
rights.

Most Favored Nation (MFN) Principle: The MFN principles ensures that every time a WTO
Member lowers a trade barrier or opens up a market, it has to do so for the like goods or services
from all WTO Members, without regard of the Members’ economic size or level of development.
The MFN principle requires to accord to all WTO Members any advantage given to any other
country. A WTO Member could give an advantage to other WTO Members, without having to
accord advantage to non- Members but only WTO Members benefit from the most favorable
treatment.
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2.3.2. Key Takeaways

 Treat trading like a business, not a hobby or a job.

 Learn everything about the business.
 Set realistic expectations for your business.

Anyone who wants to become a profitable stock trader need only spend a few minutes online to
find such phrases as "plan your trade; trade your plan" and "keep your losses to a minimum." For
new traders, these tidbits can seem more like a distraction than actionable advice. If you're new
to trading, you probably just want to know how to hurry up and make money.

Each of the rules below is important, but when they work together the effects are strong. Keeping
them in mind can greatly increase your odds of succeeding in the markets.

Rule 1: Always Use a Trading Plan

A trading plan is a written set of rules that specifies a trader's entry, exit and money management
criteria for every purchase.

With today's technology, it is easy to test a trading idea before risking real money. Known as
backtesting, this practice allows you to apply your trading idea using historical data and
determine if it is viable. Once a plan has been developed and backtesting shows good results, the
plan can be used in real trading.

The key here is to stick to the plan. Taking trades outside of the trading plan, even if they turn
out to be winners, is considered poor strategy.

Rule 2: Treat Trading Like a Business

To be successful, you must approach trading as a full- or part-time business, not as a hobby or a
job.

If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be
frustrating because there is no regular paycheck.

Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader,
you are essentially a small business owner and you must research and strategize to maximize
your business's potential.

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Rule 3: Use Technology to Your Advantage
Trading is a competitive business. It's safe to assume that the person sitting on the other side of a
trade is taking full advantage of all of the available technology.

Charting platforms give traders an infinite variety of ways to view and analyze the markets.
Backtesting an idea using historical data prevents costly missteps. Getting market updates via
smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a
high-speed internet connection, can greatly increase trading performance.

Using technology to your advantage, and keeping current with new products, can be fun and
rewarding in trading.

Rule 4: Protect Your Trading Capital

Saving enough money to fund a trading account takes a great deal of time and effort. It can be
even more difficult if you have to do it twice.

It is important to note that protecting your trading capital is not synonymous with never
experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking
unnecessary risks and doing everything you can to preserve your trading business.

Rule 5: Become a Student of the Markets

Think of it as continuing education. Traders need to remain focused on learning more each day.
It is important to remember that understanding the markets, and all of their intricacies, is an
ongoing, lifelong process.

Hard research allows traders to understand the facts, like what the different economic reports
mean. Focus and observation allow traders to sharpen their instincts and learn the nuances.

World politics, news events, economic trends—even the weather—all have an impact on the
markets. The market environment is dynamic. The more traders understand the past and current
markets, the better prepared they are to face the future.

Rule 6: Risk Only What You Can Afford to Lose

Before you start using real cash, make sure that all of the money in that trading account is truly
expendable. If it's not, the trader should keep saving until it is.

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Money in a trading account should not be allocated for the kids' college tuition or paying the
mortgage. Traders must never allow themselves to think they are simply borrowing money from
these other important obligations.

Losing money is traumatic enough. It is even more so if it is capital that should have never been
risked in the first place.

Rule 7: Develop a Methodology Based on Facts

Taking the time to develop a sound trading methodology is worth the effort. It may be tempting
to believe in the "so easy it's like printing money" trading scams that are prevalent on the
internet. But facts, not emotions or hope, should be the inspiration behind developing a trading
plan.

Traders who are not in a hurry to learn typically have an easier time sifting through all of the
information available on the internet. Consider this: if you were to start a new career, more than
likely you would need to study at a college or university for at least a year or two before you
were qualified to even apply for a position in the new field. Learning how to trade demands at
least the same amount of time and fact-driven research and study.

Rule 8: Always Use a Stop Loss

A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade.
The stop loss can be a dollar amount or percentage, but either way, it limits the trader's exposure
during a trade. Using a stop loss can take some of the stress out of trading since we know that we
will only lose X amount on any given trade.

Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss,
and therefore having a losing trade, is still good trading if it falls within the trading plan's rules.

The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss
helps ensure that losses and risks are limited.

Rule 9: Know When to Stop Trading

There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.

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An ineffective trading plan shows much greater losses than were anticipated in historical testing.
That happens. Markets may have changed, or volatility may have lessened. For whatever reason,
the trading plan simply is not performing as expected.

Stay unemotional and businesslike. It's time to reevaluate the trading plan and make a few
changes or to start over with a new trading plan.

An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of
the trading business.

An ineffective trader is one who makes a trading plan but is unable to follow it. External stress,
poor habits, and lack of physical activity can all contribute to this problem. A trader who is not in
peak condition for trading should consider taking a break. After any difficulties and challenges
have been dealt with, the trader can return to business.

Rule 10: Keep Trading in Perspective

Stay focused on the big picture when trading. A losing trade should not surprise us; It's a part of
trading. A winning trade is just one step along the path to a profitable business. It is the
cumulative profits that make a difference.

Once a trader accepts wins and losses as part of the business, emotions will have less of an effect
on trading performance. That is not to say that we cannot be excited about a particularly fruitful
trade, but we must keep in mind that a losing trade is never far off.

Setting realistic goals is an essential part of keeping trading in perspective. Your business should
earn a reasonable return in a reasonable amount of time. If you expect to be a multi-millionaire
by Tuesday, you're setting yourself up for failure.

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3. CONCLUSION
Trade is a basic economic concept involving the buying and selling of goods and services, with
compensation paid by a buyer to a seller, or the exchange of goods or services between parties.
Trade can take place within an economy between producers and consumers.
The balance of payments (BOP) is a statement of all transactions made between entities in one
country and the rest of the world over a defined period of time, such as a quarter or a year. The
balance of payments (BOP), also known as balance of international payments, summarizes all
transactions that a country's individuals, companies, and government bodies complete with
individuals, companies, and government bodies outside the country. These transactions consist of
imports and exports of goods, services, and capital, as well as transfer payments, such as foreign
aid and remittances.
About rules, 10 rules can be quoted, and they are: Always Use a Trading Plan; Treat Trading
Like a Business; Use Technology to Your Advantage; Protect Your Trading Capital; Become a
Student of the Markets; Risk Only What You Can Afford to Lose; Develop a Methodology
Based on Facts; Always Use a Stop Loss; Know When to Stop Trading; and Keep Trading in
Perspective.

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3.1. Bibliographic References
Hayes, Adam. (2020). Trade. Reviewed By Robert C. Kelly. Updated Oct 9, at
https://marketbusinessnews.com/financial-glossary/international-trade-definition-meaning/amp/

Https://blueblox.ch/what-is-international-trade-policy/

Https://www.investopedia.com/terms/t/trade.asp

Kenton, Will. (2020). Balance of payments. Updated Apr 23, at

https://www.investopedia.com/terms/b/bop.asp

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