Trading Blocs, Common Markets, and Economic Unions
Trading Blocs A trading bloc is defined as a number of nations within a geographical area that guard themselves against imports and non-members. Trading blocs bring countries together and increase the conditions for imports. Regional barriers to trade, i.e., tariffs,…
Implications of Trade and Capital Restrictions
Trade Restrictions Governments restrict international trade by imposing trade policies to shield domestic producers from competition. The main types of trade restrictions are discussed below.
Ricardian and Heckscher–Ohlin Models of Trade
Ricardian and Heckscher-Ohlin models of trade generally describe countries’ differences. Further, they give important insights into patterns and determinants of trade.
Comparative Advantage vs Absolute Advantage
A country producing goods at a lower cost than its trading partner has an absolute advantage. On the other hand, a country is said to have a comparative advantage over others in the production of a particular good if it…
Benefits and Costs of International Trade
The costs and benefits of trade are subjects that elicit a lot of interest in most countries. However, most economists agree that the advantages of international trade probably outweigh its disadvantages. Below are the main benefits and costs associated with…
Compare Gross Domestic Product (GDP) and Gross National Product (GNP)
Gross domestic product (GDP) measures the market value of goods and services from production factors such as labor and capital in a country within a given period of time. On the other hand, gross national product (GNP) measures the market…
Exchange Rates on International Trade
There are many effects of exchange rates on countries’ international trade and capital flow. Most of them are listed below. Changing Prices of Currencies Shifts in the supply and demand of products change the prices of those products. Similarly, constant…
Understanding Exchange Rate Regimes
Almost every exchange rate regime has its flaws, virtues, and particularities. Since exchange rates in different currencies fluctuate due to the influence of market forces, some nations peg their currencies on other currencies. Others, still, have market-determined floating rate regimes….
Calculate and Interpret a Forward Discount or Premium
Forward Discount A forward discount is when the current domestic spot exchange rate is traded at a higher level than the current domestic future spot rates. The analysis of the expectations from a market depends mostly on discounts and premiums….
Relationship Among Forward, Interest and Spot Rates
The interest rate difference between two countries affects the spot and forward rates. Using a single period analogy, an investor who has funds to invest in treasury securities, has two alternatives:
