The International Market
The importance of international trade
The reason countries trade
? additional income from sale of goods/services
?selling overseas bring in money to by from other countries
?quality of live of all countries involved can be improved
foreign trade = buying and selling of goods /services between different counties in the world
Import = bought from other country – outflow of funds
Export = sold to other country – inflow of funds
Visible trade = import and export of goods
Invisible trade = import and export of services (tourism, transport, insurance…)
principle of comparative costs:
Difference between climate or natural resources ? countries have to trade in order to obtain goods which they cannot produce themselves
? specialisation and differentiation in commodities for which they have a comparative advantage (low production costs)
? import commodities from countries where production is comparative cheaper
Balance of trade (trade gap)
= records the value of countries’ imports and exports
?favourable – when exports exceed imports (? surplus has been created)
?adverse (unfavourable) – when imports exceed exports (? deficit has been created)
Balance of payment
visibles = goods
invisibles = services
= a statement of the difference in total value of all payments made to other countries and the total payment received from them
? includes visibles and invisibles
? shows weather the country is making a profit or a loss in its dealings with other countries
?favourable – net inflow of capital (country has earned more than it spent)
?adverse – net outflow (country has spent more than it has earned)
current account = records trade in goods ...