Foreign Trade 1/2 Flashcards
Absolute Advantage
- Advantage in the production of one particular
product compared to other countries - If it requires a smaller quantity of inputs
and lower cost to produce that good
Comparative Advantage
- When a country is more in advantage to produce both products
- Should still specialize in producing 1 product that is more efficient and with less opportunity cost
Autarky
- A situation when countries produce independently and do not do foreign trading
Economic Benefits of Foreign Trade
- Broadens sources of products, expanding choices and lowering prices for everyone
- Strengthens competition,
encourages innovation and efficient use of
services.
Philippine Imports
- Amounted to 98.5 billion
- top imports like petrochemicals, vehicles, electrical equipment, machinery and grains
International Monetary Standards
- Gold Standard
- Dollar Standard
- Flexible Exchange Rates
Exchange rate
The value of a country’s money to be exchanged for foreign money
Advantage and Disadvantage of FER
- automatic adjustment of the value of currencies
- Absence of long term stable exchange rates
Solutions to exchange rate instability:
Controlled float - Where some countries central banks resort to buying or selling foreign currencies to manipulate exchange rates
Fixed exchange rate - Where countries set their currency’s exchange rate to a fixed amount for a specified period of time, disregarding the demand and supply mechanism of FER
Balance of trade
Balance of trade - Difference between monetary value of imports and exports within a given period of time
Trade surplus and deficit
Trade Surplus - occurs when exports > imports
- Can lead to an increase of exchange rate to foreign currency reserves
Trade Deficit - occurs when imports > exports
- Foreign currency reserves may be depleted leading to devaluation of exchange rate
