International trade definitions

Question 1

Exports and imports

Answer 1

Exports - Are Australian made goods and services that are purchased by foreign households, businesses, governments and other foreign groups.

Imports - Foreign produced goods and services that are purchased by Australian households, businesses, governments and other foreign groups.

Question 2

Balance of payments (BOP)

Answer 2

Records all of Australia’s financial transactions with the rest of the world and is made up by the current account (CA) and capital and financial account (CAFA).

Question 3

Current account (CA)

Answer 3

Records all receipts and payments of a ‘current’ nature, as opposed to transactions of a ‘capital’ nature which are recorded in the CAFA.
A current account deficit (CAD) means that payments to foreigners (debits) exceed receipts from foreigners (credits).

Question 4

Capital and financial account (CAFA)

Answer 4

Capital account - covers capital transfers and the acquisition/disposal of non-produced, non-financial assets between residents and non-residents.

Financial account - Records how Australia finances any current accounts deficits.

Question 5

Structural component of CAD

Answer 5

The CAD that exists when the economy is running at its long run trend rate of growth (approximately 3% per anum)

Question 6

Cyclical component of CAD

Answer 6

The size of the CAD will continue to change over time in line with the economic cycle, resulting in a CAD that moves either below or above its relatively normal or ‘structural’ level.

Question 7

Terms of Trade

Answer 7

A ratio for the average prices received for Australian exports relative to the average prices paid for our imports.
Export price index / Import price index x 100/1

Question 8

Trade liberalisation

Answer 8

Any initiative that is designed to promote free trade or reduce restrictions or barriers to free trade with other countries.