INTERNATIONAL TRADE

Prepared and Presented by Miss S. Brown

Balance of trade

• The balance of trade, commercial balance, or net exports, is the

difference between the monetary value of a nation's exports and
imports over a certain time period. Sometimes a distinction is
made between a balance of trade for goods versus one for
services.
current account 

The current account is a country's trade balance plus net income

and direct payments. The trade balance is a country's imports and
exports of goods and services. The current account also measures
international transfers of capital.
capital account

The capital account, on a national level, represents the balance of

payments for a country. The capital account keeps track of the net
change in a nation's assets and liabilities during a year. The capital
account's balance will inform economists whether the country is a
net importer or net exporter of capital.
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.
balance of payments disequilibria

When a country's current account is at a deficit or surplus,

its balance of payments (BOP) is said to be in disequilibrium. ...
A balance of payments disequilibrium can occur when there is an
imbalance between domestic savings and domestic investments.
tariff

A tariff is a tax imposed by a government on imports or exports of

goods. Besides being a source of revenue for the government,
import duties can also be a form of regulation of foreign trade and
policy that taxes foreign products to encourage or safeguard
domestic industry
Common External Tariff

A common external tariff (CET) must be introduced when a group of

countries forms a customs union. The same customs duties, import
quotas, preferences or other non-tariff barriers to trade apply to all
goods entering the area, regardless of which country within the area
they are entering.
Quota (non-tariff barriers)

A nontariff barrier is a trade restriction–such as a quota, embargo or

sanction–that countries use to further their political and economic
goals. Countries usually opt for nontariff barriers (rather than
traditional tariffs) in international trade. Nontariff
barriers include quotas, embargoes, sanctions, and levies.
exchange rate

In finance, an exchange rate is the rate at which one currency will

be exchanged for another. It is also regarded as the value of one
country's currency in relation to another currency
exchange rate regime 

An exchange rate regime is how a nation manages its currency in the

foreign exchange market. An exchange rate regime is closely related
to that country's monetary policy. There are three basic types
of exchange regimes: floating exchange, fixed exchange,
and pegged float exchange.
World Trade Organisation (WTO)

The World Trade Organization (WTO) is the

only global international organization dealing with the rules
of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world's trading nations and
ratified in their parliaments.
The concept of comparative advantage

The theory of comparative advantage. A country has a comparative

advantage when it can produce a good at a lower opportunity cost
than another country; alternatively, when the relative productivities
between goods compared with another country are the highest. is
perhaps the most important concept in international trade
The concept of gains from trade.

In economics, gains from trade are the net benefits to economic

agents from being allowed an increase in voluntary trading with
each other. In technical terms, they are the increase of consumer
surplus plus producer surplus from lower tariffs or otherwise
liberalizing trade.
International trade as a “win-win”

• We see international trade relations as a win-win situation. We

don’t see this as a situation where, like in a zero-sum game, one
party loses because another party wins. Trade is beneficial for
everyone. It needs to take place on the basis of rules and these
rules are in place.
• The measures that we are prepared to take will prove that we
will, on the basis of the rules, not hesitate to protect our industry.
Factors that influence International Trade:

• on the import side

• on the export side.
Terms of trade

The terms of trade (TOT) is the relative price of exports in terms of

imports and is defined as the ratio of export prices to import prices.
An improvement of a nation's terms of trade benefits that country in
the sense that it can buy more imports for any given level of
exports.
factors that influence exchange rates

• Inflation. The rate at which the general level of prices for goods
and services is rising is known as the inflation rate
• Interest rates. There is also a high correlation
between inflation, interest rates and exchange rates
• Speculation
• Balance of payments/current account deficit
• Public debt.
Fixed, Floating and Managed exchange rate
regimes

A fixed exchange rate denotes a nominal exchange rate that is set

firmly by the monetary authority with respect to a
foreign currency or a basket of foreign currencies. By contrast,
a floating exchange rate is determined in
foreign exchange markets depending on demand and supply, and it
generally fluctuates constantly.
Appreciation and depreciation of a currency

Currency appreciation, however, is different from the increase in

value for securities. Currencies are traded in pairs. Thus,
a currency appreciates when the value of one goes up in comparison
to the other. In contrast, if a currency depreciates, it loses value
against the currency against which it is being traded.
Downward and upward adjustments to the
value of a currency.

Devaluation, the deliberate downward adjustment in the

official exchange rate, reduces the currency's value; in contrast, a
revaluation is an upward change in the currency's value. A key
effect of devaluation is that it makes the domestic currency cheaper
relative to other currencies.
Balance of Trade as the difference between the values
of exports and imports of visible and invisible.

Balance of trade (BOT) is the difference between the value of a

country's exports and the value of a country's imports for a given
period. Balance of trade is the largest component of a
country's balance of payments (BOP). Sometimes the balance of
trade between a country's goods and the balance of trade between
its services are distinguished as two separate figures.
Current Account

The current account is a country's trade balance plus net income

and direct payments. The trade balance is a country's imports and
exports of goods and services. The current account also measures
international transfers of capital.
Capital Account

The capital account, on a national level, represents the balance of

payments for a country. The capital account keeps track of the net
change in a nation's assets and liabilities during a year. The capital
account's balance will inform economists whether the country is a
net importer or net exporter of capital.
Official Financing Account

The financial account is a component of a country's balance of

payments ... Financial account components include direct
investment, portfolio ... An official settlement account tracks
central banks' reserve asset transactions.
Entries that would appear in the balance of
payments account

Conversely, imports of foreign goods and services will appear as

debits in the balance of payments as these transactions give rise
to payments to the rest of the world. The corresponding payments,
which resulted from the increase in liabilities to foreigners, are
recorded as credit entries.
Surplus as excess of receipts over payments

The excess of receipts over payments on account of these

transactions is called the current account balance. Capital
transactions involve payments or receipts for the purchase of
assets---that is, of claims against countries' future output.
Deficit as excess of expenditure over receipts

Fiscal Deficit: The excess of total expenditure

over total receipts excluding borrowings is called Fiscal Deficit. In
other words, the Fiscal Deficit gives the amount needed by the
government to meet its expenses. Thus a large Fiscal Deficit means
a large amount of borrowings
Factors that give rise to surpluses

• Terms of Trade:
• Differences in Cost Ratio:
• Reciprocal Demand:
• Size of the Country:
• Level of Income:
• Productive Efficiency:
• Endowments and Technological Conditions
• Nature of Products Exported:
Factors that give rise to a deficit

• Overvalued exchange rate. ...

• Economic growth. ...
• Decline in competitiveness/export sector. ...
• Higher inflation. ...
• Recession in other countries. ...
• Borrowing money. ...
• Financial flows to finance current account deficit.
Possible consequences of balance of
payments surpluses and deficits

• A balance of payments deficit means the country imports more

goods, services, and capital than they export. It must borrow from
other countries to pay for its imports.
• A balance of payments surplus means the country exports more
than it imports. It provides enough capital to pay for all domestic
production. The country might even lend outside its borders.
Possible consequences of balance of
payments surpluses and deficits