Concepts Of International Trade

Trade Terms: This refers to the exchange prices between a country’s exports and imports. Favorable terms of trade occur when the prices of a country’s exports are greater than those of its imports, while unfavorable terms of trade occur when the reverse is true.   Visible exports primarily consist of tangible commodities recorded in a […]

Trade Terms: This refers to the exchange prices between a country’s exports and imports. Favorable terms of trade occur when the prices of a country’s exports are greater than those of its imports, while unfavorable terms of trade occur when the reverse is true.

 

Visible exports primarily consist of tangible commodities recorded in a country’s balance of trade. In contrast, invisible exports encompass services, such as insurance, civil aviation, shipping, and tourist services, which are quantified in monetary terms and appear in the country’s balance of payments.

 

Imports: Visible imports comprise easily observable commodities purchased by a country from other nations, appearing in the balance of trade. Invisible imports consist of services provided to other countries, calculated in monetary terms, and reflected in the balance of payments.

 

Balance of Payment Deficits: This denotes a scenario where a country’s receipts are lower than its payments over a specified period, indicating an economic lack of self-sufficiency.

 

Causes of Unfavorable Balance of Payment:

  1. Decline in a country’s exports.
  2. Limited technological advancement or reliance on primitive tools.
  3. Reduced production.
  4. Adverse weather conditions leading to poor harvests.
  5. Excessive preference for foreign-made goods and services.

 

Measures to Correct Balance of Payment Deficit:

  1. Devaluation of the local currency to decrease the value of exports and increase the cost of imports.
  2. Encouraging the export of goods and services.
  3. Decreasing imports.
  4. Boosting local production to enhance exports.
  5. Selling the country’s foreign investments.
  6. Seeking grants and aids from wealthier nations.
  7. Borrowing from financial institutions such as the International Monetary Fund (IMF) and World Bank.

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