International Trade and Economics Review

A comprehensive set of flashcards covering international trade concepts, currency dynamics, economic principles, and financial markets.

What is Absolute Advantage?

When one country can outproduce another country in the production of goods.

What is Comparative Advantage?

When a country can produce at a lower opportunity cost than another country.

What is an Import?

A product made abroad and purchased in the US.

What is an Export?

A product made in the US and purchased abroad.

Why do nations trade?

Due to uneven distributions of resources, technologies, and differentiated quality.

Who are Free Traders?

People who support trade without restrictions.

What is the result of Free Trade?

Lower prices, more efficient use of resources, and economic growth.

What is Protectionism?

The use of trade barriers to protect a nation’s domestic industries.

What is the impact of Protectionism?

Higher prices, less efficiency, and fewer choices for consumers.

What is the main function of the World Trade Organization (WTO)?

To ensure that trade flows as smoothly and freely as possible.

How many nations are members of the WTO?

166 nations.

What was the European Union (EU) comprised of?

27 European countries.

What does USMCA stand for?

United States-Mexico-Canada Agreement.

What are pros of USMCA?

Lowers the price of goods, good for GDP, increases exports.

What are cons of USMCA?

Jobs lost in the US, larger trade deficit, suppresses wages of non-college graduates.

What is a Tariff?

A tax on an import.

What is an Import Quota?

Limits the amount of a good allowed into a country.

What is a Subsidy?

Cash grants or loans given to businesses to lower production costs.

What is Currency Manipulation?

A deliberate attempt by a country to lower the value of its currency.

What is a Trade Embargo?

When a country ceases trade with another country for political reasons.

What is a Trade War?

A situation where countries damage each other's trade, typically via tariffs.

What is the Balance of Trade?

The comparison of a nation’s exports and imports.

What defines a trade deficit?

When a country's exports are less than its imports.

What defines a trade surplus?

When a country's exports are greater than its imports.

What is the role of the US dollar internationally?

It is the dominant currency with significant global influence.

What is the Gold Standard?

A system where currencies are fixed in value to a specified amount of gold.

What was the Bretton Woods Agreement?

Established the U.S. dollar as the dominant reserve currency, convertible to gold at $35 per ounce.

Why was the Gold Standard abandoned?

Due to instability and to curb inflation.

What does Fiat money mean?

Currency that has value because the government maintains it, allowing for dynamic fluctuations.

What is a Foreign Exchange Market?

A market where one country's currency is traded for another's.

What is dollar depreciation?

A decrease in the value of the dollar compared to foreign currencies.

What impact does dollar depreciation have on imports?

Imports become more expensive.

What impact does dollar depreciation have on exports?

Exports become cheaper.

What formula is used to find the dollar price of a product in foreign currency?

Price in USD = Price in foreign currency × Dollar price of foreign currency.

What is the opportunity cost of making a shirt in Mexico?

4/2 bike.

What is the opportunity cost of making a bike in Mexico?

2 shirts.

Who has the absolute advantage in making shirts?

China.

Who has the absolute advantage in making bikes?

China.

What country has the comparative advantage in making bikes?

Mexico.

What country has the comparative advantage in making shirts?

China.

How do currency prices fluctuate?

Based on supply and demand in foreign exchange markets.

What happens when the dollar appreciates?

Dollar buys more foreign currency, making imports cheaper.

What can affect the supply and demand of currencies?

Buying and traveling actions of a nation.

What is price discrimination?

Charging different prices to different customers for the same product.

What are Sole Proprietorships?

The most common form of business in the US with one owner.

What is a partnership?

A business structure where two or more people share ownership.

What defines a corporation?

A legal entity owned by stockholders.

What are the advantages of sole proprietorships?

Control over business, retention of profits, and easy setup.

What are the disadvantages of corporations?

Double taxation of profits and complex regulations.

What is a franchise?

A fast-growing form of business allowing license agreements to operate under a brand.

What is an oligopoly?

A market structure where a few firms dominate the market.

What is perfect competition?

A market structure with many small firms selling identical products.

What are the four types of monopolies?

Technical, Natural, Government, Geographic.

What is deregulation?

The removal of government restrictions in economic industries.

What is a mutual fund?

Funds that pool savings to invest in a variety of stocks and bonds.

What is a stock split?

When a single share splits into multiple shares.

What does the SEC do?

Regulates financial markets and protects investors.

What is a bull market?

A market trend where stock prices rise steadily.

What is a bear market?

A market trend where stock prices decline.

What is the Dow Jones Industrial Average?

An index representing 30 large companies in various industries.

How do bondholders earn money?

By receiving interest payments and the principal upon maturity.

What is a bond's coupon rate?

The interest rate that the bond issuer pays to the holder.

What is par value in bonds?

The amount paid back to investors when the bond matures.

What is opportunity cost?

The cost of the next best alternative foregone.

What is a cash manipulation?

Deliberate attempts to alter a currency's value.

What happens to American exports when the dollar appreciates?

They become more expensive.

What happens to American imports when the dollar depreciates?

They become cheaper.

What is the price of one dollar in pesos when $1 = 10 pesos?

1 dollar equals 10 pesos.

What is the dollar price of $100 worth of pesos when $1 = 10 pesos?

$10.

What is economic growth?

An increase in the production of goods and services over time.

How do trade barriers impact consumers?

They lead to higher prices and fewer choices.

What is the primary benefit of technology in trade?

Improves efficiency and reduces costs.

What is a Bank's role in international trade?

Facilitates currency exchange and financial transactions.

What role does demand play in currency value?

Higher demand increases currency value.

What is financial market regulation?

Oversight by authorities to maintain market integrity and protect investors.

What is a stockholder?

An owner of shares in a company.

What happens when a company goes public?

It offers shares of stock to the general public for the first time.

What influences stock prices?

Market conditions, investor perceptions, and company performance.

What is credit risk?

The risk of a borrower failing to repay a loan.

Why are bonds considered safer than stocks?

They provide regular interest payments and are repaid at maturity.

What is liquidity?

The ease with which an asset can be converted to cash.

What is a financial asset?

An asset that derives value from a contractual claim.

What is a derivative?

A financial contract whose value is derived from the performance of assets.

What promotes business expansion?

Investment and access to capital.

What is a market structure?

The organizational and competitive characteristics of a market.

What does a market equilibrium represent?

The point where supply and demand meet.

What are interest rates?

The cost of borrowing money, expressed as a percentage.

What are primary markets?

Markets where new securities are issued and sold.

What defines a secondary market?

Markets where existing securities are traded among investors.

How can diversification reduce risk?

By spreading investments across various assets.

What are speculative investments?

High-risk investments seeking high returns.

What is the purpose of an exchange rate?

To determine the value of one currency relative to another.