International Trade

Question 1

What is domestic trade?

Answer 1

Domestic trade is the exchange of goods and services within a country’s borders.

Question 2

Define international trade.

Answer 2

International trade is the exchange of goods and services between countries.

Question 3

What are other terms for international trade?

Answer 3

International trade is also known as foreign trade or external trade.

Question 4

What are the purposes of international business for governments?

Answer 4

Governments undertake international business for profit and political reasons.

Question 5

What is international finance?

Answer 5

International finance studies the dynamics of foreign exchange and cross-border monetary transactions.

Question 6

Why is international finance important?

Answer 6

It helps organizations engage in global trade by understanding capital markets and exchange rates.

Question 7

What is a benefit of studying international finance?

Answer 7

It aids in understanding consumption and production patterns across economies.

Question 8

What are three advantages of international finance?

Answer 8

Understanding consumption patterns, guiding investments, and understanding production patterns.

Question 9

What factor encourages trade between nations?

Answer 9

Differences in natural resources encourage trade.

Question 10

How do climatic differences affect trade?

Answer 10

Different climates favor the production of certain crops, creating a need for trade between countries with different climates.

Question 11

How does human resource quality impact international trade?

Answer 11

Countries lacking skilled labor may rely on imports for certain goods and services.

Question 12

Why do some countries buy capital-intensive products instead of producing them? They may lack the capital needed for production.

Answer 12

They may lack the capital needed for production.

Question 13

Fill in the blank: International business involves transactions across ____________.

Answer 13

national borders.

Question 14

True or False: Private companies engage in international business only for political gain.

Answer 14

False. Private companies engage in international business mainly for profit, while governments may do so for profit and political reasons.

Question 15

Explain how differences in natural resources lead to international trade.

Answer 15

Since resources like crude oil, coal, or minerals are not evenly distributed, countries that lack them must import from countries with surpluses.

Question 16

Why might a country in a tropical region be involved in international trade?

Answer 16

Tropical regions may produce agricultural goods suited to their climate, like cocoa or coffee, which they export to countries in different climate zones.

Question 17

Provide two reasons why countries engage in international trade.

Answer 17

Countries engage in trade due to differences in resources, climatic conditions, production techniques, foreign exchange needs, and consumer preferences.

Question 18

Give an example of a country where climate supports a specific crop, explaining its role in trade.

Answer 18

Thailand has a climate favorable for rice production, which allows it to export rice to countries with less suitable climates for rice cultivation.

Question 19

How can international finance help investors?

Answer 19

It guides investors by providing insights into global market trends, helping them make informed investment decisions.

Question 20

List three advantages of studying international finance.

Answer 20

Understanding consumption and production patterns, guiding investment, and monitoring foreign exchange rates.

Question 21

What are two main risks involved in international trade?

Answer 21

Exchange rate fluctuations and political risks.

Question 22

Describe the impact of exchange rate fluctuations on international trade.

Answer 22

Exchange rate changes can make imports more expensive or exports less competitive, affecting profit margins for businesses engaged in international trade.

Question 23

How does political risk impact international business?

Answer 23

Political instability or changes in government policy in a country can disrupt trade agreements, affect foreign investments, and increase the cost of doing business.

Question 24

Describe how international trade can enhance economic growth.

Answer 24

It raises economic welfare by opening markets, reducing poverty, and encouraging specialization.

Question 25

Why might a country restrict international trade?

Answer 25

To protect national security, support infant industries, and prevent dumping.

Question 26

What is protectionism?

Answer 26

Protectionism is a policy where a country restricts international trade to protect its economy from foreign competition.

Question 27

How does protecting an infant industry benefit a country?

Answer 27

It allows the industry to grow, become competitive, and eventually compete in global markets.

Question 28

What is the national security argument for trade protection?

Answer 28

Protecting strategic industries like defense and related industries keeps essential industries safe from foreign dependence.

Question 29

What is dumping?

Answer 29

Dumping is when a foreign company sells goods in another country at a price below production cost to gain a market monopoly.

Question 30

Give an example of a tariff as a protectionist measure.

Answer 30

Import duties are tariffs imposed on goods entering a country, making foreign products more expensive than domestic ones.

Question 31

What is a quota in the context of international trade?

Answer 31

A quota limits the amount of a specific good that can be

Question 32

Describe a voluntary export restraint (VER).

Answer 32

A VER is an agreement where an exporting country limits its exports to a particular country.

Question 33

What are political risks in international trade?

Answer 33

Risks like government change, bans on payments, revolution, war, or riots that can disrupt trade transactions.

Question 34

Define regulatory risk in international trade.

Answer 34

Regulatory risk is the chance that changes in laws or regulations will prevent or impact a transaction, like changes in taxes or accounting rules

Question 35

How can government intervention be a risk in international trade?

Answer 35

Governments may restrict or ban certain transactions, preventing them from being completed.

Question 36

What are commercial risks in international trade?

Answer 36

Commercial risks include credit risk, transit risk, buyer insolvency, or non-acceptance of goods by the buyer.

Question 37

Explain exchange rate risk.

Answer 37

Exchange rate risk is the possibility that currency value changes will affect the profitability of international transactions.

Question 38

What is transaction risk under exchange rate risk?

Answer 38

Transaction risk is the risk that exchange rate changes between the contract and settlement dates will affect the transaction’s profitability.

Question 39

How does translation risk impact companies?

Answer 39

Translation risk arises when assets or liabilities in foreign currency are converted into local currency, potentially leading to a loss.

Question 40

What is economic risk in international trade?

Answer 40

Economic risk is the long-term risk that exchange rate fluctuations will make a company less competitive in the market.

Question 41

Describe interest rate risk.

Answer 41

Interest rate risk is the possibility of a financial loss due to fluctuations in interest rates, impacting the cost of borrowing.

Question 42

What is a status enquiry in international trade risk management?

Answer 42

A status enquiry is a method used to check the reliability or creditworthiness of a trading partner before entering into a transaction.

Question 43

How can hedging help manage exchange rate risk?

Answer 43

Hedging uses financial instruments like forward contracts, options, or swaps to lock in exchange rates and protect against currency fluctuations.

Question 44

Name two forms of insurance that help mitigate risks in international trade.

Answer 44

Credit insurance and marine insurance.

Question 45

How does matching receipts against payments help reduce currency risk?

Answer 45

By matching foreign currency receipts and payments, companies can offset currency fluctuations and reduce exposure to exchange rate risk.