Unit 1 Flashcards
What is the International Trade?
Purchase, sale, or exchange of goods and services across national borders
What is FDI?
Foreign Direct Investment (FDI) is the purchase of physical assets or a significant amount of the ownership of a company in another country to gain a measure of management control
What is FPI?
Foreign Portfolio Investment (FPI) is investment that does not involve obtaining a degree of control in a company
What are benefits of International Trade?
(1) Open doors to new entrepreneurial opportunity across nations
(2) Provide a country’s people with greater choice of goods and services
(3) An important engine for job creation in many countries
What is Mercantilism?
Mercantilism is a trade theory holding that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports.
What is absolute advantage?
Absolute advantage is the ability of a nation to produce a goods more efficiently than any other nations (rest of the world - ROW)
What is the comparative advantage?
Comparative advantage is the inability of a nation to produce a goods more efficiently than other nations, but an ability to produce that good more efficiently than it does any other goods
What is the factor proportions theory?
The factor proportions theory is a trade theory holding that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply
What is MDCs?
MDCs is more developed countries
What is LDCs?
LDCs is less developed countries
What is the export structure of LDCs?
It is primary commodities, includes: agriculture, aqua-culture, and raw materials
What is the import structure of LDCs?
It is intermediate/manufactured, includes finished products, and semi finished products
What is TOT?
Terms of trade is the relative prices of a country’s export to import
If TOT >1, does it gain or loss?
GAIN
If TOT <1, does it gain or loss?
LOSS
According to the orthodox economists, which countries gain from trade?
According to the orthodox economists, all countries have it own comparative advantage and they gain from trade
According to the neo-Marxists (TOT), which countries gain from trade?
According to the neo-Marxists (TOT), the LDCs lost from trade
What does visible trade consist of?
Visible trade consists of all those goods which can be seen and touched such as machines, televisions, motorcycles, refrigerators, food, raw materials (tangible commodity)
What does invisible trade refer to?
Invisible trade refers to all those items which we export, which cannot be seen or touched such as sales of insurance, banking services, airline seats or sea cargo (intangible commodity)
What is the balance of trade?
The balance of trade is the difference in value between imports and exports of goods over a particular period
If value of import < value of export, what is it called?
Trade surplus
If value of import > value of export, what is it called?
Trade deficit
What does the balance of payments (BOP) measure?
In economies, the balance of payments (BOP) measures the payments that flow between any individual country and all other countries
What is the balance of payments used for?
It is used to summarize all international economic transactions for that country during a specific time period, usually a year
What does the balance of payments comprise?
It comprises the current account, the capital account, and the financial account. Together, these accounts balance in the sense that the sum of the entries is conceptually zero.
What is the current account?
Current account is a national account that records transactions involving the import and export of goods and services, income receipts on assets abroad, and income payments on foreign assets inside the country
What is the current account surplus?
when a country exports more goods, services, and income than it imports
What is current account deficit?
when a country imports more goods, services and income than it exports
What is the capital account?
The capital account is a national account that records transactions involving the purchase or sale of assets
What is the financial account?
The financial account records transactions that involve financial assets and liabilities and that take place between residents and nonresidents
What is a balance of payments equillibrium?
A balance of payments equilibrium is defined as a condition where the sum of debits and credits from the current account and the capital and financial accounts equal to zero; in other words, equilibrium is where current account + (capital + financial account) = 0
What is the balance of payments identity?
Current account = capital account + financial account+ net errors and omissions
What is the export precedure?
(1) Transport the goods to the docks or airport
(2) Pass them through customs
(3) Clear them through another set of customs on arrival
(4) Present them to the correct customers
What does export documents consist of?
- Bill of Lading (B/L)
- Export invoice
- Certificate of Origin
- Certificate of Value
- Declaration of dangerous goods
- Certificate of insurance
- Health certificate
- Import licence
What is the B/L?
Bill of Lading is the bill containing details of the goods being shipped, their destination and which ship they will be travelling
What is the export invoice?
It is the “bill” to the customer, requiring payment once he has received the goods
What is the certificate of origin?
It is a certificate used to prove the goods have come from UK for example and are not being imported under false pretences from a different country whose goods might be prohibited from entry
What is the certificate of value?
It’s a certificate used to prove the goods are worth what the invoice says they are worth
What is the declaration of dangerous goods?
It is required by international law for certain classes of goods such as explosives or volatile chemicals
What is the certificate of insurance?
It is needed by the shipping company, or airline, or by your customer, so that they can be assured that the value of the goods is covered should an accident happen
What is the health certificate?
It is needed for drugs and similar products and for transport of animals
What is the import licence?
It is the permission to import your goods, needed for certain countries and products
What are the reasons for governmental intervention in trade?
- Cultural motives
- Political motives
- Economic motives
What are cultural motives?
- The cultures of countries are slowly altered by exposure to the people and products of other cultures
- Cultural influence of the United States: the United States, more than any other nations, is seen as a threat to national cultures around the world
What are political motives?
- to protect jobs
- to preserve national security
- to respond to “unfair” trade
- to gain influence
What are economic motives?
- to protect infant industries
- to pursue strategic trade policy
What are methods of restricting trade?
- Tariff
- Quotas
- Embargoes
- Local content requirements
- Administrative delays
- Currency controls
What is the protectionism?
Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies.
This policy is closely aligned with anti-globalization, and contrasts with free trade, where government barriers to trade are kept to a minimum.
The term is mostly used in the context of economies, where protectionism refers to policies or doctrines which “protect” businesses and workers within a country by restricting or regulating trade with foreign nations
What is quota?
An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.
Quotas, like other trade restrictions, are used to benefit the producers of the good in that economy. Critics say quotas often lead to corruption, smuggling, and higher prices for customers.
In economies, quotas are thought to be less economically efficient than tariffs which in turn are less economically efficient than free trade
What is tariff?
A tariff is a tax imposed on goods when they are moved across a political boundary. They are usually associated with protectionism, the economic policy of restraining trade between nations. For political reasons, tariffs are usually imposed on imported goods, althoug they may also be imposed on exported goods.
Definitions, and reasons for implementing quotas
Quotas: restrictions on the amount (measured in units or weight) of a good that can enter or leave a country during a certain period of time
Reasons for import quotas
* to protect domestic producers by placing a limit on the amount of goods allowed to enter the country
* to force companies of other nations to compete against one another for the limited amount of imports allowed
Reasons for export quotas
* to maintain adequate supplies of a product in the home market
* to restrict supply on world markets, thereby increasing the international price of the good
What is the embargoes?
It is a complete ban on trade in one or more products with a particular country
What is the local content requirements method?
It is laws stipulating that a specified amount of a good or service be supplied by producers in the domestic market
What is the administrative delays method?
It is regulatory control or bureaucratic rules designed to impair the rapid flow of imports into a country
What is the currency controls method?
They are restrictions on the convertibility of a currency into other currencies
What are organizations in international trade?
- IMF ( The International Monetary Fund)
- UNCTAD (The United Nations Conference on Trade and Development)
- GATT (The General Agreement on Tariffs and Trade)
- WTO (World Trade Organization)
