Chapter One: Trade Finance and Foreign Exchange Flashcards
Trade Finance and Foreign Exchange
What is international trade?
The exchange of goods and services between countries
What roles do exporters and importers play in international trade?
Exporters deliver goods; importers make payments
Why do countries engage in international trade?
To utilize resources more efficiently and obtain products not available domestically or at better prices
What is specialization in the context of international trade?
Producing certain goods based on resource availability and quality, then trading for others
How does trade increase overall economic well-being?
By providing a greater selection of goods and services at lower costs
What are consumer surplus and producer surplus?
Measures of economic well-being, where consumer surplus benefits consumers and producer surplus benefits producers
What is mercantilism?
An early economic philosophy advocating for exporting more than importing
Who opposed mercantilism and what did they advocate?
Adam Smith; he advocated for free trade and specialization based on absolute advantage
What is the concept of comparative advantage?
A country can benefit from trade by specializing in goods where it has a relative advantage, even if it has an absolute disadvantage
What are trade barriers?
Measures like tariffs, quotas, and non-tariff barriers introduced by governments to protect domestic industries
What is the Balance of Payments (BOP)?
A statistical statement recording a country’s economic transactions with the rest of the world
What does the Balance of Payments consist of?
The current account and the capital and financial account
What are foreign exchange reserves?
Assets held by a central bank in foreign currencies to back liabilities and influence monetary policy
What is currency convertibility?
The ease with which a country’s currency can be converted into another currency
What are the two types of currency convertibility?
Partial and full convertibility
