International Trade Flashcards
What is domestic trade?
Domestic trade is the exchange of goods and services within a country’s borders.
Define international trade.
International trade is the exchange of goods and services between countries.
What are other terms for international trade?
International trade is also known as foreign trade or external trade.
What are the purposes of international business for governments?
Governments undertake international business for profit and political reasons.
What is international finance?
International finance studies the dynamics of foreign exchange and cross-border monetary transactions.
Why is international finance important?
It helps organizations engage in global trade by understanding capital markets and exchange rates.
What is a benefit of studying international finance?
It aids in understanding consumption and production patterns across economies.
What are three advantages of international finance?
Understanding consumption patterns, guiding investments, and understanding production patterns.
What factor encourages trade between nations?
Differences in natural resources encourage trade.
How do climatic differences affect trade?
Different climates favor the production of certain crops, creating a need for trade between countries with different climates.
How does human resource quality impact international trade?
Countries lacking skilled labor may rely on imports for certain goods and services.
Why do some countries buy capital-intensive products instead of producing them? They may lack the capital needed for production.
They may lack the capital needed for production.
Fill in the blank: International business involves transactions across ____________.
national borders.
True or False: Private companies engage in international business only for political gain.
False. Private companies engage in international business mainly for profit, while governments may do so for profit and political reasons.
Explain how differences in natural resources lead to international trade.
Since resources like crude oil, coal, or minerals are not evenly distributed, countries that lack them must import from countries with surpluses.
Why might a country in a tropical region be involved in international trade?
Tropical regions may produce agricultural goods suited to their climate, like cocoa or coffee, which they export to countries in different climate zones.
Provide two reasons why countries engage in international trade.
Countries engage in trade due to differences in resources, climatic conditions, production techniques, foreign exchange needs, and consumer preferences.
Give an example of a country where climate supports a specific crop, explaining its role in trade.
Thailand has a climate favorable for rice production, which allows it to export rice to countries with less suitable climates for rice cultivation.
How can international finance help investors?
It guides investors by providing insights into global market trends, helping them make informed investment decisions.
List three advantages of studying international finance.
Understanding consumption and production patterns, guiding investment, and monitoring foreign exchange rates.
What are two main risks involved in international trade?
Exchange rate fluctuations and political risks.
Describe the impact of exchange rate fluctuations on international trade.
Exchange rate changes can make imports more expensive or exports less competitive, affecting profit margins for businesses engaged in international trade.
How does political risk impact international business?
Political instability or changes in government policy in a country can disrupt trade agreements, affect foreign investments, and increase the cost of doing business.
Describe how international trade can enhance economic growth.
It raises economic welfare by opening markets, reducing poverty, and encouraging specialization.
Why might a country restrict international trade?
To protect national security, support infant industries, and prevent dumping.
What is protectionism?
Protectionism is a policy where a country restricts international trade to protect its economy from foreign competition.
How does protecting an infant industry benefit a country?
It allows the industry to grow, become competitive, and eventually compete in global markets.
What is the national security argument for trade protection?
Protecting strategic industries like defense and related industries keeps essential industries safe from foreign dependence.
What is dumping?
Dumping is when a foreign company sells goods in another country at a price below production cost to gain a market monopoly.
Give an example of a tariff as a protectionist measure.
Import duties are tariffs imposed on goods entering a country, making foreign products more expensive than domestic ones.
What is a quota in the context of international trade?
A quota limits the amount of a specific good that can be
Describe a voluntary export restraint (VER).
A VER is an agreement where an exporting country limits its exports to a particular country.
What are political risks in international trade?
Risks like government change, bans on payments, revolution, war, or riots that can disrupt trade transactions.
Define regulatory risk in international trade.
Regulatory risk is the chance that changes in laws or regulations will prevent or impact a transaction, like changes in taxes or accounting rules
How can government intervention be a risk in international trade?
Governments may restrict or ban certain transactions, preventing them from being completed.
What are commercial risks in international trade?
Commercial risks include credit risk, transit risk, buyer insolvency, or non-acceptance of goods by the buyer.
Explain exchange rate risk.
Exchange rate risk is the possibility that currency value changes will affect the profitability of international transactions.
What is transaction risk under exchange rate risk?
Transaction risk is the risk that exchange rate changes between the contract and settlement dates will affect the transaction’s profitability.
How does translation risk impact companies?
Translation risk arises when assets or liabilities in foreign currency are converted into local currency, potentially leading to a loss.
What is economic risk in international trade?
Economic risk is the long-term risk that exchange rate fluctuations will make a company less competitive in the market.
Describe interest rate risk.
Interest rate risk is the possibility of a financial loss due to fluctuations in interest rates, impacting the cost of borrowing.
What is a status enquiry in international trade risk management?
A status enquiry is a method used to check the reliability or creditworthiness of a trading partner before entering into a transaction.
How can hedging help manage exchange rate risk?
Hedging uses financial instruments like forward contracts, options, or swaps to lock in exchange rates and protect against currency fluctuations.
Name two forms of insurance that help mitigate risks in international trade.
Credit insurance and marine insurance.
How does matching receipts against payments help reduce currency risk?
By matching foreign currency receipts and payments, companies can offset currency fluctuations and reduce exposure to exchange rate risk.
Define “legal risk” in the context of trade.
The risk of loss due to illegal acts or regulatory non-compliance.
Explain the concept of “dynamic comparative advantage.”
It refers to advantages gained over time through learning-by-doing and innovation.
Why is economic interaction a benefit of international trade?
It fosters collaboration and strengthens diplomatic ties between nations.
How can insurance protect against trade risks?
It provides financial compensation for losses such as damage, credit default, or transit risks.
What are three common types of risks in international trade?
Political, regulatory, and exchange rate risks.
What is the primary difference between tariffs and quotas?
Tariffs are taxes on imports; quotas limit the volume of imports.
Explain the concept of “dynamic comparative advantage.”
It refers to advantages gained over time through learning-by-doing and innovation.
