I. Overview of International trade
1. International trade: Purchase, sale, or
exchange of goods and services across
2. Foreign Direct Investment (FDI):
Purchase of physical assets or a
significant amount of the ownership of a
company in another country to gain a
measure of management control.
3. Portfolio Investment: Investment that does
not involve obtaining a degree of control
in a company.
II. Benefits of International trade
Open doors to new entrepreneurial
opportunity across nations.
Provide a country’s people with greater
choice of goods and services.
An important engine for job creation in
III. Theories of International trade
1.Mercantilism: Trade theory holding that
nations should accumulate financial
wealth, usually in the form of gold, by
encouraging exports and discouraging
2. Absolute advantage: Ability of a nation
to produce a good more efficiently than
any other nation.
3. Comparative advantage: Inability of a
nation to produce a goods more efficiently
than other nations, but an ability to produce
that good more efficiently than it does any
4. Factor proportions theory: Trade theory
holding that countries produce and export
goods that require resources (factors) that
are abundant and import goods that require
resources in short supply.
Terms of trade
Terms of trade or TOT is the relative
prices of a country's export to import
An improvement in a nation's terms of
trade(the increase of the ratio) is good
for that country in the sense that it has
to pay less for the products it imports,
that is, it has to give up fewer exports for
the imports it receives.
Gain from trade
According to the orthodox economists:
All countries have its own comparative
advantage and they gain from trade
According to the neo-Marxists: the LDCs
lost from trade
Comparative advantage explains how
trade can create value for both parties
even when one can produce all goods
with fewer resources than the other. The
net benefits of such an outcome are
called gains from trade. It is the main
concept of the pure theory of
IV. The balance of trade
Visible trade consists of all those goods
which can be seen and touched such as
machines, televisions, motorcycles,
refrigerators, food, raw materials…
Invisible trade refers to all those items
which we export, which cannot be seen or
touched such as sales of insurance,
banking services, airline seats or sea
The balance of trade is the difference in
value between imports and exports of
goods over a particular period.
V. The balance of payments
In economics, the balance of payments
(BOP) measures the payments that flow
between any individual country and all
IMF definition: "Balance of Payments is a
statistical statement that summarizes
transactions between residents and
nonresidents during a period.”
It is used to summarize all international
economic transactions for that country
during a specific time period, usually a
The balance of payments comprises the
current account, the capital account,
and the financial account. "Together,
these accounts balance in the sense
that the sum of the entries is
1. Current account
Current account is a national account that
records transactions involving the import
and export of goods and services, income
receipts on assets abroad, and income
payments on foreign assets inside the
Current account surplus (a trade surplus):
When a country exports more goods,
services, and income than it imports.
Current account deficit (a trade deficit):
When a country imports more goods,
services and income than it exports.
2. Capital account
Capital account: A national account that
records transactions involving the
purchase or sale of assets
3. Financial account
The financial account records
transactions that involve financial assets
and liabilities and that take place
between residents and nonresidents.
A balance of payments equilibrium is
defined as a condition where the sum of
debits and credits from the current
account and the capital and financial
accounts equal to zero; in other words,
equilibrium is where
Current account + (Capital + Financial
account) = 0
This is a condition where there are no
changes in Official Reserves. When there
is no change in Official Reserves, the
balance of payments may also be stated as
Current account = - (Capital + Financial
Current account deficit (or surplus) = Capital
and Financial account) surplus (or deficit)
Balance of payments identity
Current Account = Capital Account + Financial
Account + Net Errors and Omissions
1. Export procedures
-Transport the goods to the docks or
-Pass them through customs
-Clear them through another set of
customs on arrival
-Present them to the correct customers
2. Export documents
-Bill of lading (BL): containing details of the goods
being shipped, their destination and which ship
they will be traveling.
-Export invoice: The ‘bill’ to the customer, requiring
payment once he has received the goods.
-Certificate of origin: To prove the goods have come
from UK for example and are not being imported
under false pretences from a different country
whose goods might be prohibited from entry.
-Certificate of value: To prove the goods are worth
what the invoice says they are worth.
-Customs declaration: A signed statement of what
2. Export documents
-Declaration of dangerous goods: Required by
international law for certain classes of goods
such as explosives or volatile chemicals.
-Certificate of insurance: Needed by the shipping
company, or airline, or by your customer, so
that they can be assured that the value of the
goods is covered should an accident happen.
-Health certificate: Needed for drugs and similar
products and for transport of animals.
-Import licence: Permission to import your goods.
Needed for certain countries and products.
VII. Reasons for governmental
intervention in trade
-The cultures of countries are slowly
altered by exposure to the people and
products of other cultures.
-Cultural influence of the United States:
the United States, more than any other
nations, is seen as a threat to national
cultures around the world.
-To protect jobs
-To preserve national security
-To respond to ‘unfair’ trade
-To gain influence
Protectionism is the economic policy of restraining
trade between nations, through methods such as
tariffs on imported goods, restrictive quotas, and a
variety of other restrictive government regulations
designed to discourage imports, and prevent
foreign take-over of local markets and companies.
This policy is closely aligned with anti-
globalization, and contrasts with free trade, where
government barriers to trade are kept to a
minimum. The term is mostly used in the context of
economics, where protectionism refers to policies
or doctrines which "protect" businesses and
workers within a country by restricting or
regulating trade with foreign nations.
An import quota is a type of protectionist trade
restriction that sets a physical limit on the
quantity of a good that can be imported into a
country in a given period of time. Quotas, like
other trade restrictions, are used to benefit the
producers of a good in a domestic economy at
the expense of all consumers of the good in
that economy.Critics say quotas often lead to
corruption (bribes to get a quota allocation),
smuggling (circumventing a quota), and higher
prices for consumers.In economics, quotas are
thought to be less economically efficient than
tariffs which in turn are less economically
efficient than free trade.
A tariff is a tax imposed on goods
when they are moved across a
political boundary. They are usually
associated with protectionism, the
economic policy of restraining trade
between nations. For political
reasons, tariffs are usually imposed
on imported goods, although they
may also be imposed on exported
VIII. Methods of restricting trade
1. Tariffs: Government tax levied on a
product as it enters or leaves a country.
-To protect domestic producers
-To generate revenue
2. Quotas: Restriction on the amount
(measured in units or weight) of a good
that can enter or leave a country during a
certain period of time.
-Reasons for import quotas:
+To protect domestic producers by placing a
limit on the amount of goods allowed to
enter the country.
+To force companies of other nations to
compete against one another for the limited
amount of imports allowed.
-Reasons for export quotas:
+To maintain adequate supplies of a
product in the home market.
+To restrict supply on world markets,
thereby increasing the international price
of the good.
3. Embargoes: Complete ban on trade
(imports and exports) in one or more
products with a particular country.
4. Local content requirements: Laws
stipulating that a specified amount of a
good or service be supplied by
producers in the domestic market.
5. Administrative delays: Regulatory
control or bureaucratic rules designed to
impair the rapid flow of imports into a
6. Currency controls: Restrictions on the
convertibility of a currency into other
IX. Organizations in international
1. The International Monetary Fund (IMF)- set
up in 1974 to ensure that the world’s
currencies were kept at reasonably stable
rates against each other.
2. The United nations Conference on Trade
and Development (UNCTAD) - set up in the
3. The General Agreement on tariffs and
trade (GATT) – set up after World War II
4. World Trade Organization (WTO)
1.Company structure and strategies
4. International trade
5. Financing International trade
6. Mergers and acquisition
7. Accounting and financial statement
8. Stock and bond