International Trade and Exchange Rate
CHAPTER 12:
INTERNATIONAL TRADE AND EXCHANGE
International trade - is the exchange of goods and services between countries.
Export - A product that is sold to the global market
Import - A product that is bought from the global market
Comparative Advantage – a lower relative or comparative opportunity cost than that of another person, producer or country.
Terms of Trade- the rate at which units of one product can be exchanged for units of another product.
Foreign Exchange Market – a market at which foreign currencies are exchanged and relative currency prices are established.
Exchange rates- rates at which national currencies trade for one another.
Depreciation – a decrease in the value of a currency relative to another currency.
Appreciation– an increase in the value of a currency relative to another currency.
GENERALIZATIONS IN EXCHANGE RATE * If the demand for nation’s currency increases the currency will appreciate and depreciate when it declines. * If the supply of a nation’s currency increases the currency will depreciate and appreciate when it decreases. * If a nations currency appreciates, some foreign currency depreciate relative to it.
DETERMINANTS OF EXCHANGE RATES * Tastes * Relative Income * Relative Price Level * Relative Interest Rates * Changes in Relative Expected Returns on Stocks, Real Estate, and Production Facilities * Speculations
TRADE PROTECTIONS AND SUBSIDIES * Tariffs- Taxes imposed by a nation on imported goods. * Import Quotas- limits imposed by nations on the quantities of goods that may be imported during some period of time. * Nontariff Barriers- all impediments other than protective tariffs that nations establish to impede imports, including import quotas, licensing requirements, unreasonable product quality standard * Voluntary Export Restriction (VER)- an agreement by countries or foreign firms to limit their export to a certain foreign nation to avoid enactment
INTERNATIONAL TRADE AND EXCHANGE
International trade - is the exchange of goods and services between countries.
Export - A product that is sold to the global market
Import - A product that is bought from the global market
Comparative Advantage – a lower relative or comparative opportunity cost than that of another person, producer or country.
Terms of Trade- the rate at which units of one product can be exchanged for units of another product.
Foreign Exchange Market – a market at which foreign currencies are exchanged and relative currency prices are established.
Exchange rates- rates at which national currencies trade for one another.
Depreciation – a decrease in the value of a currency relative to another currency.
Appreciation– an increase in the value of a currency relative to another currency.
GENERALIZATIONS IN EXCHANGE RATE * If the demand for nation’s currency increases the currency will appreciate and depreciate when it declines. * If the supply of a nation’s currency increases the currency will depreciate and appreciate when it decreases. * If a nations currency appreciates, some foreign currency depreciate relative to it.
DETERMINANTS OF EXCHANGE RATES * Tastes * Relative Income * Relative Price Level * Relative Interest Rates * Changes in Relative Expected Returns on Stocks, Real Estate, and Production Facilities * Speculations
TRADE PROTECTIONS AND SUBSIDIES * Tariffs- Taxes imposed by a nation on imported goods. * Import Quotas- limits imposed by nations on the quantities of goods that may be imported during some period of time. * Nontariff Barriers- all impediments other than protective tariffs that nations establish to impede imports, including import quotas, licensing requirements, unreasonable product quality standard * Voluntary Export Restriction (VER)- an agreement by countries or foreign firms to limit their export to a certain foreign nation to avoid enactment