trading blocs and wto, terms of trade, BoP, exchange rates

1. What are trading blocs? 

groups of countries usually in specific areas that have a specific trade agendas or policies

How do trading blocs result in trade diversion?

less trade happens with rest of world as countries are suggested or forced to trade with less efficient sources

3. How do trading blocs result in trade creation?

more trade may happen without protectionism within blocs meaning that trade has happened that otherwise would not happen

4. What is a free trade area?  Give examples. 

a free trade area is a group of countries that agree to remove all trade barriers e.g. NAFTA or CPTPP

5. What is a customs union? Give examples. 

a group of countries where all nations have a common set of protectionist measures and have free trade within them (like an RTA with common protectionist measures)

6. What is common market? Give examples. 

customs union but also have a free movement of goods and services within e.g. the eu single market

7. What are monetary unions? Give examples. 

like common markets but with a common currency e.g. the eurozone

8. What are the benefits of trading blocs? 

trade creation

EoS

jobs and investment

protection

9. What are the drawbacks of trading blocs? 

loss of free trade outside the bloc

distortion of comparative advantage

retaliation

10. What are the benefits of monetary unions? 

Price transparency

Exchange rate stability

(no) Transactional costs

11.  What are the drawbacks of monetary unions? 

(loss of) Monetary policy independence

(loss of) Exchange rate flexibility

Transitional costs

12.  What is the World Trade Organisation (WTO)? 

intergovernmental organisation that aims to promote free trade

13.  What is the role of the WTO? 

seeks to encourage free trade

only international agency overseeing rules of international trade

14. How do trade blocs create conflict with the WTO? 

deter free trade as trad eis encouraged between only certain countries and customs unions + encourage external protectionism

1. What is meant by the terms of trade? 

ration of the price index for exports to the price index for imports

2. How is the terms of trade calculated? 

weighted avg for export prices/weighted avg for import prices x 100

3. How does the terms of trade affect competitiveness of a country? 

higher ToT=less competitive

4. How does the terms of trade affect the living standards in a country? 

higher ToT = less competitive but higher living standards

5. What are some factors which might affect the terms of trade? 

demand and supply of X and M

relative inflation rates

exchange rate movements

income

productivity

technology

1. What is the balance of payments? 

record of all transactions between one country and the rest of the world

2. What are the three components of the balance of payments? 

caoital account

financial account

current account

What is the current account? 

a record of all payments for trade in G&S as well as ncome flow

made up of four components

4. What are the main sections of the current account? 

made up of four components

trade in goods

trade in services

income

current transfer

5. What the surplus/deficit positions of these sections?  

6. What are some factors which might cause imbalances on the current account? 

7. What are some causes of current account deficits and surpluses? 

deficits:

8. How might government try to reduce a current account imbalances? 

9. What is the capital account? 

10.  How significant is the capital account? 

11.  What is the financial account? 

12. What are the four elements of the financial account? 

13.  What is foreign direct investment (FDI)? 

14.  Why is FDI important? 

15.  Why must the balance of payments always balance?

16.  Why is the “net errors and omissions” item included? 

17. Why might persistent deficits on the balance of payments be a problem? 

18.  Why might persistent surpluses on the balance of payments be a problem? 

1. What is an exchange rate? 

2. What is a floating exchange rate? 

3. How is the exchange rate determined in the floating exchange rate system? 

4. What are fixed exchange rates? 

5. How is the rate of exchange determined in the fixed exchange rate system? 

6. What are managed exchange rates? 

7. How do countries operate a managed exchange rate system? 

8. What is meant by an appreciation of an exchange rate? 

9. What is meant by a depreciation of an exchange rate? 

10.  What is meant by a revaluation of a currency? 

11.  What is meant by the devaluation of a currency? 

12.  What are some factors which might determine the demand for a currency? 

13. What are some factors which might determine supply of a currency? 

14. What are some ways in which a country might attempt to manage its exchange rate? 

15.  How might a country benefit from a depreciation of its currency? 

16.  How might exchange rate changes impact on the current account of the balance of payments? 

17.  What is the Marshall-Lerner condition?

18. What is the significance of the Marshall-Lerner condition on the impact of a depreciation on the current account? 

19. J-Curve? 

20. What is the significance of the J-Curve on the current account after a depreciation of a currency? 

21.  How might changes in the exchange rate impact on a country’s competitiveness? 

22.  How might changes in the exchange rate impact on FDI?