Foundations of International

Business
 IB SYSTEMS

TRADE,CURRENCY ,FINANCE
 TRADE
Free trade agreement (FTA) - is a formal agreement
between two (bilateral) or more (multilateral) countries to reduce
or eliminate tariffs, quotas and barriers to trade in products and
services.
Regional economic integration - is a growing economic
interdependence that results when two or more countries within a
geographical region form an alliance aimed at reducing barriers
to trade and investment and reduce tariff and non-tariff barriers.
 Levels of Economic Integration

Free trade area: a group of countries committed to removing all barriers

to the free flow of goods and services between each other, but pursuing
independent external trade policies.
Customs union: a group of countries committed to removing all barriers to
the free flow of goods and services between each other and the pursuit of a
common external trade policy.
Common market: a group of countries committed to removing all barriers
to the free flow of goods and services and factors of production (e.g. labor,
capital) between each other and the pursuit of a common external trade policy.
 Levels of Economic Integration

Political union: the same as the economic union, but countries also have a
central government and military.
Economic union: the same as the common market but countries are also
committed to the adoption of a common currency (monetary policy) and the
harmonization of tax rates (fiscal policy).
 CURRENCY
Foreign exchange rate - is the rate at which one currency is converted into
another. Currencies can experience appreciation, the increase in the value of the
currency, or depreciation, a loss in the value of the currency in terms of another
currency.
Foreign exchange - is all forms of money that are traded internationally, including
foreign currencies, bank deposits, cheques and electronic transfers.
Foreign exchange market - is a market for converting the currency of one
country into that of another country.
Currency hedging - is a transaction that protects traders and investors from
exposure to the fluctuations of the exchange rate.
 FINANCE

Finance – monetary and macroeconomic interrelations between

two or more countries

International monetary system - is the institutional

framework, rules and procedures by which national currencies
are exchanged for one another.