This document provides an overview of an international trade and policy course. The 6-unit course covers topics like international trade theories, economic growth and trade, trade policies, and economic integration. It lists two textbooks for the course. It then discusses what international trade is, its importance for firms and nations, and how it has grown. It covers reasons firms engage in trade like expanding markets and lowering costs. It also discusses modes of international business operations and how economic events in one country can impact others due to increased interdependence. Finally, it lists some international economic problems faced by different countries.

1. BBA TERM 4
UNIT 1
Neeraj Bhandari
Neerazz.lee13@gmail.com
INTERNATIONAL TRADE &
POLICY

2. About the Course
6 Units
1. Introduction to International Trade
2. International Trade Theories,
3. Economic Growth and International Trade
4. International Trade Policies
5. Economic Integration
6. Balance of Payments and Foreign Exchange
Rates
Course module to be mailed to class
representatives

3. About the Course
Text Books
 Dominick Salvatore: International Economics
(Wiley India Edition)
 Bo Sodersten and Geoffrey Reed: International
Economics (MacMillan Press)

4. What is International Trade?
 The buying and selling of goods and services
across national borders is known as international
trade
 International trade is the backbone of our
modern, commercial world, as producers in
various nations try to profit from an expanded
market, rather than be limited to selling within
their own borders

5. What is International Trade?
 Almost every kind of product can be found on the
international market: food, clothes, jewelry,
currencies, etc. Services are also traded: tourism,
banking, consulting, etc.
 International trade is the reason because of which
why you can pick between a Japanese, German
or American car

6. Importance of International
Trade
 Economics deals with the proper allocation and
efficient use of scarce resources
International Trade is also concerned with
allocation of economic resources among
countries
The best products are produced and sold in
competitive market, and benefits of efficient
production like better quality and lower price are
available to all people of the world

7. Growing International Trade
 With the help of modern production techniques,
highly advanced transportation systems,
transnational corporations, outsourcing of
manufacturing and services, and rapid
industrialization, the international trade system is
growing and spreading very fast
 The restrictions to international trade would limit the
nations to the services and goods produced within its
territories, and they would lose out on the valuable
revenue from the global trade
 Nations with strong international trade have
become prosperous and have the power to control
the world economy

8. Reasons That Firms Engage in International
Business/Importance of International Trade
1. Expanding sales and gaining global market share
2. Helps firms to maintain cost competitiveness in the
domestic market
3. Lower production costs in one region versus another
4. Specialized industries
5. Lack or surplus of natural resources
6. Consumer tastes

9. Reasons That Firms Engage in International
Business/Importance of International Trade
7. Helps to reduce dependence on existing markets
and stabilize seasonal market fluctuations

10. Point1and 2
 By providing goods and services across national
borders, helps to increase sales volumes and
lowering down per unit cost (economies of scale),
thereby increasing profits
 This helps in the keeping prices low and thereby
the firm is more cost competitive in the domestic
market as well

11. Point 3: Lower Costs in
Developing Nations
 There is currently a great deal of concern over
jobs being taken away from the United States and
other "developed" nations as countries such as
China, India, Indonesia and others produce
goods and services at much lower costs
 Both the United States and the European Union
have imposed severe restrictions on imports from
Asian nations
 Nevertheless, American and European
consumers are happy to lower their costs of living
by taking advantage of cheaper, imported goods.

12. Point 4: Specialized Industries
 Specialized industry is the one that has
developed due to national talent and/or tradition
 Swiss watches, for example, will never be price-
competitive with mass produced watches from
Asia. So is the case with German cutlery,
English bone China and fine French silk
 Consumers in many parts of the world are willing
to import these goods from countries that are the
best at making them

13. Point 5
 Total net oil imports from oil producing nations in
2005 was over 26 million barrels per day and
consumer nations continue to absorb this flow
 Other natural resources contribute to the
movement of international trade, but none to the
extent of the oil trade
 Others are Diamonds from Africa, Coal and steel
from Canada and Russia.

14. Point 6
 Consumers have varied tastes and they can be
fulfilled with international trade like preference for
Swiss chocolates, Indian spices, Mexican
Nachos, Arabian Coffee, Japanese Cars, etc.

15. Point 7
 Companies can serve in other countries apart
from domestic market and generate more
revenue and tide over periods of seasonal
variations

16. Modes of Operation in International
Business
 Merchandise exports and imports
(Physical product is sold in exchange of sales price)
There may be logistical difficulties
There are exchange rate fluctuations, and
There is susceptibility to trade barriers
Service exports and imports
Like Tourism, Transportation, Banking services, Management Consultancy
Services
Technical assistance, expertise and people are shared
 Franchising and Licensing
 Management Contracts
 Turnkey Operations
 Investments
FDI and FII

17. Modes of Operation in
International Business
 Both FDI and FII is related to investment in a foreign
country
 FDI or Foreign Direct Investment is an investment that
a parent company makes in a foreign country. On the
contrary, FII or Foreign Institutional Investor is an
investment made by an investor in the markets of a
foreign nation
 In FII, the companies only need to get registered in
the stock exchange to make investments. The
Foreign Institutional Investor is also known as hot
money as the investors have the liberty to sell it and
take it back. But in Foreign Direct Investment, this is
not possible.

18. Modes of Operation in
International Business
 Foreign Direct Investment only targets a specific enterprise. It
aims to increase the enterprises capacity or productivity or
change its management control. In an FDI, the capital inflow is
translated into additional production.
The FII investment flows only into the secondary market. It helps
in increasing capital availability in general rather than enhancing
the capital of a specific enterprise.
 The Foreign Direct Investment is considered to be more stable
than Foreign Institutional Investor. FDI not only brings in capital
but also helps in good governance practices and better
management skills and even technology transfer.
 While the FDI flows into the primary market, the FII flows into
secondary market. While FIIs are short-term investments, the
FDIs are long term.

19. International Trade and Nation’s
Standard of Living
 A nation with a rich human and natural resources
and with specialized products can fulfill their own
needs an also export to other countries
 Small industrial countries like Switzerland and
Austria have very few specialized resources and
thus produce and export a much smaller range of
products and import the rest
 For developing nations exports provide
employment opportunities and earnings for the
products they do not produce and for advanced
technology that they need

20. International Trade and Nation’s
Standard of Living
 Imports and Exports as a percentage of GDP are
much higher for smaller industrial and developing
nations than they are for developed industrialized
nations
 Nations like US rely on international trade for
commodities they do not themselves produce like
coffee, cocoa and tea and also for minerals and
natural resources like copper, tin, petroleum that
they lack
 Nations also use products from other countries
that are available at a cheaper price than in their
country

21. Economic Interdependence of
Nations
 Over the years economic interdependence of
nations has increased and there has been rapid
growth in world trade
 Economic recession and terrorism hits the
international trade
 Economic events and policies in one country
significantly impact other nations

22. Economic Interdependence of
Nations
 The strong US economy creates more purchasing
power and which I turn creates increased
demand for import of commodities and this
stimulates the economy of other nations that
export commodities to US
 When there is inflow of funds to a country, its
increases the value of its currency/stronger
currency. Stronger value of a currency
encourages imports but discourages exports from
that country which can dampen the economic
activity of the country

23. Economic Interdependence of
Nations
 Trade negotiations that reduce trade barriers
across nations lead to increase in exports of high
technology goods like medical equipments and
computers and also lead to increase in
employment in the concerned sectors
 Economic interdependence in turn influences
political and social relations among nations

24. International Economic Theories and
Policies
Purpose:
 To examine the gains from trade
 To study the reasons for and effects of trade
restrictions
 To study policies that regulate the flow of
international payments and receipts
 To study the effects of these policies on a nation’s
welfare and welfare of other nations
 To examine the effectiveness of macroeconomic
policies under different types of monetary
systems
 Help us to understand the international economic
problems and offer suggestions for their

25. International Economic Problems
1. Trade Protectionism in Industrial Countries
2. Excessive Fluctuations in Exchange Rates
3. Restructuring problems of transition economies
4. Deep poverty in many developing countries
5. Financial Crisis in emerging market economies
6. High structural Unemployment in countries like
Europe (all time high 0f 12 percent in Feb 2013)
7. Job insecurity from restructuring and downsizing
by countries

26. Thank You