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Description
Flashcards by Nikolas Reece, updated more than 1 year ago
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Created by Nikolas Reece
over 10 years ago
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| 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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