International Economics(Unit 1) S-3

What is a reason for international trade?

Scarcity

What are the three types of international trade?

Absolute Advantage, Comparative Advantage, Economics of Scale

What is Absolute Advantage in international trade?

One country produces an item cheaper than another country.

Give an example of Absolute Advantage.

Bananas

What is Comparative Advantage in international trade?

Both countries produce the same goods and give up one to make more of the other for trade.

Give an example of Comparative Advantage.

Tables and chairs

What is Economics of Scale in international trade?

Increasing production to minimize costs.

Give an example of a product that benefits from Economics of Scale.

Cars

How do exports enable small countries to achieve Economics of Scale?

By allowing them to increase production and reduce costs.

Give an example of a company that utilizes Economics of Scale.

Ikea

How many stores does Ikea have in different countries?

400 stores

What is the definition of a trade deficit?

Imports are greater than exports.

What is the definition of a trade surplus?

Exports are greater than imports.

Does money leave the country regardless of the Balance of Trade?

No, money almost never leaves the country regardless of the Balance of Trade.

What is an example of a trade deficit involving the US and China?

The US has a trade deficit with China, leading China to invest American dollars in the US.

What is the Balance of Payments?

It reflects foreign investments in the U.S., making the U.S. a 'debtor' country.

What is Foreign Direct Investment (FDI)?

Investment made by a company in a foreign country.

What is an example of Foreign Direct Investment involving China?

China selling Ford trucks to the U.S.

Which country is the number one source of Foreign Direct Investment to the U.S.?

Great Britain.

What are remittances?

Money sent home by foreign workers from another country.

What is imperialism in the context of wealth transfers?

One country plunders another and sends wealth back home.

What is foreign aid?

A government-to-government transfer of resources aimed at developing poor economies.

What is a common criticism of foreign aid?

Politicians often enrich themselves rather than helping the economy.

What types of resources can foreign aid include?

Money, food, and loans.

What happens if loans from foreign aid are forgiven?

They are considered gifts.

What is the Foreign Exchange Market?

A market for trading currencies based on supply and demand.

What is an exchange rate?

The value of one currency in terms of another currency.

What does it mean for a currency to appreciate?

It means the currency is getting stronger.

What does it mean for a currency to depreciate?

It means the currency is getting weaker.

What is FOREX an abbreviation for?

Foreign Exchange

What type of market is the foreign exchange market?

Decentralized

Is there government control over the foreign exchange market?

No

What is the largest trading market in the world by volume?

Foreign Exchange Market

What is the daily trading volume of the foreign exchange market?

$5 trillion

How often is trading conducted in the foreign exchange market?

24 hours a day, 5 days a week

Who are the primary members of the foreign exchange market?

Major banks

Which bank is considered the largest in the foreign exchange market?

Citi Bank