International Trade Flashcards
Exchange rate
The rate at which one currency will be exchanged for another
Exchange rates are quoted two ways
Direct quote
If an exchange rate is an indirect quote, it is stated as a number of foreign units per one unit of domestic currency
Competitive advantage is a strategic advantage that
One business entity has over its rival entities within its competitive industry
Foreign exchange for travelers is
People needing to exchange currencies in a number of situations
Types of foreign currency
Travelers check
Travelers card
Foreign currency cash
What can be done with leftover foreign currency
You can sell it to a bank or money change
Fluctuation in exchange rate is determined by
The country and their management of the value of its currency
Floating exchange rate
Type of exchange rate regime wherein a currency’s value is allowed to fluctuate according to the foreign exchange market
What causes currency to be 1. More valuable 2. Less valuable
When demand for it is greater than supply
When demand is less than the supply
Transactional demand
Highly correlated to a country’s level of business activity, gross domestic product (GPD), and employment levels
Speculative demand
Much harder for central banks to accommodate which they influence by adjusting interest rates
Factors that affect the balance of trade
- The cost of production in the export economy vis-à-vis those in the importing economy
- The cost and availability of raw materials, intermediate goods, and other imports
- Exchange rate movements
- Multilateral, bilateral and unilateral taxes or restrictions in trade
- Non tariff barriers
- The availability of adequate foreign exchange with which to pay for imports
- Prices of goods manufactured at home
Balance of payments
Accounts are an accounting record of all monetary transactions between a country and the rest of the world
Current account
An important indicator about an economy’s health
Sum of the balance of trade net income from abroad and net current transfers
Capital account
Is one of two primary components of the balance of payments, the other being current account; reflects net change in national ownership of assets
The term is used when?
When their is an imbalance
Fixed exchange rate
Type of exchange rate regime wherein a currency’s value is matched to the value of another single currency , or to a basket of other currencies, or to another measure of value
Alternatives to a fixed exchange rate
- a managed float where some changes of exchange rates are allowed
- A purely floating exchange rate , also known as purely flexible exchange rate
I’m export led growth the balance of trade will?, in import led growth the balance of trade will
Improve during economic expansion,
Worsen at economic expansion
Why is measuring the balance of trade problematic
Problems with recording or collecting data
Types of currency
Hybrid, pegged or fixed, free floating