Scribd Logo
Upload

Welcome to Scribd!

  • Foreign Trade and Exchange Rate

    Uploaded by

    tanvir09
    410 views3 pages
    The document discusses foreign trade, balance of payments, exchange rates, and factors that influence exchange rates. It defines foreign trade as the exchange of goods and services between two countries through imports and exports. The balance of payments tracks a country's transactions, including the balance of trade and financial flows. Exchange rates represent the price of one country's currency in terms of another and can be fixed by governments or set by market forces. Determinants of exchange rates include the balance of payments, interest rates, inflation, and political/economic conditions.

    Original Description:

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The document discusses foreign trade, balance of payments, exchange rates, and factors that influence exchange rates. It defines foreign trade as the exchange of goods and services between two countries through imports and exports. The balance of payments tracks a country's transactions, including the balance of trade and financial flows. Exchange rates represent the price of one country's currency in terms of another and can be fixed by governments or set by market forces. Determinants of exchange rates include the balance of payments, interest rates, inflation, and political/economic conditions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    410 views3 pages

    Foreign Trade and Exchange Rate

    Uploaded by

    tanvir09
    The document discusses foreign trade, balance of payments, exchange rates, and factors that influence exchange rates. It defines foreign trade as the exchange of goods and services between two countries through imports and exports. The balance of payments tracks a country's transactions, including the balance of trade and financial flows. Exchange rates represent the price of one country's currency in terms of another and can be fixed by governments or set by market forces. Determinants of exchange rates include the balance of payments, interest rates, inflation, and political/economic conditions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    Foreign Trade and Exchange Rate

    Foreign Trade
    Any exchange of goods and services with between two countries
    • Import
    Buying goods and services from foreign country
    • Export
    Selling goods and services to a foreign country
    • Balance of trade
    an account or a statement of country of its export to and import from all the other country
    in a specific period of time

    Benefits of Foreign Trade


    • Makes goods and services which are not home grown to the home country
    • Makes things cheaper
    • Improves quality of life
    • Knowledge, technology and skill transfer
    • Conducive to specialization and efficiency
    • Labor mobilization
    • Social and political benefits

    Balance of Payment (BOP)


    “Statistical statement that systematically summarizes, for specific time period, the
    economic transaction of one country with the rest of the world.” (IMF)
    • Includes Balance of Trade and other components shown in the slides to follow
    Components of BOP

    Current account Capital account


    Net export/Import of goods
    • • Net transfer due to purchase
    and
    services of capital items and fixed
    Net income from
    • assets
    investment and
    salary and wages
    Net transfer by migrants
    •
    and
    permanent workers abroad
    and of
    gifts, grant, pensions
    Financial Account Reserve and related items
    Net foreign direct •
    • Change of
    investment
    Net portfolio investment • Official money reserve
    •
    •
    • Other financial items Gold reserve
    • Foreign exchange reserve

    Exchange Rate
    Price of 1 unite of one country’s currency in term another country’s currency
    • Exchange rate of country A with country B is how much of currency B can be obtained
    for 1 unit of currency B
    • Today’s exchange rate of Bangladeshi taka with USD is 0.01454 while other way round
    is 68.77 (source: yahoo finance)
    Fixed and Floating Exchange Rate
    Fixed/Managed Exchange Rate
    • When the exchange rate of a country is regulated by its government
    Floating Exchange Rate
    • When the exchange rate is determined by the market without any interference of the
    government

    Fixed Exchange rates - Features


    Exchange rate of the currency is pegged (fixed) with a powerful country
    • Conservative policy
    • Helps protect inflation and manipulation
    • Strict monitoring of foreign trade and maintenance of foreign currency reserve required
    • Suitable for week and badly regulated economies
    • Artificial system
    • Increase and decrease in exchange rate in this system is called Revaluation and
    Devaluation respectively

    Floating Exchange rates - Features


    • Natural system
    • Little concern is required with foreign currency reserve
    • Sometimes problem for developing economies
    • Increase and decrease in exchange rate in this system is called Appreciation and
    Depreciation respectively

    Determinants of Exchange rate


    • Balance of payment
    • Purchasing power of the local currency
    • Interest rate
    • Inflation
    • Political factors
    • Speculation

    You might also like