The foreign exchange market or forex market is the market where currencies are traded. The forex market is the world’s largest financial market where trillions are traded daily. It is the most liquid among all the markets in the financial world. Discuss in detail the reasons for international trade (Foreign Exchange Markets)
Discuss in detail the reasons for international trade (Foreign Exchange Markets)
INTRODUCTION
International trade can be defined as the exchange of goods and services between countries globally. 🗸🗸 These trade agreements are negotiated by protocols and agreement due to the uneven distribution of natural resources globally. 🗸🗸
BODY-MAIN PART
The main reasons for international trade.
Demand reasons
The size of the population impacts demand.
- If there is an increase in population growth, it causes an increase in demand, as more people’s needs must be satisfied. 🗸🗸
- Local suppliers may not be able to satisfy this demand. 🗸🗸
The population’s income levels effect demand.
- Changes in income cause a change in the demand for goods and services. 🗸🗸
• An increase in the per capita income of people in more disposable income that can be spent on local goods and services, some of which may then have to be imported. 🗸🗸
An increase in the wealth of the population leads to greater demand for goods.
- People have access to loans and can spend more on luxury goods, many of which are produced in other countries. 🗸🗸
Preferences and tastes can play a part in the determining of prices,
- E.g. customers in Australia have a preference for a specific product which they do not produce and need to import and it will have a higher value than in other countries. 🗸🗸
The difference in consumption patterns is determined
- By the level of economic development in the country, e.g. a poorly developed country will have a high demand for basic goods and services but a lower demand for luxury goods. 🗸🗸
Supply reasons
Natural resources are not evenly distributed
- Across all countries of the world. 🗸🗸
- They vary from country to country and can only be exploited in places where these resources exist. 🗸🗸
Climatic conditions
- Make it possible for some countries to produce certain goods at a lower price than other countries, e.g. Brazil is the biggest producer of coffee. 🗸🗸
Labour resources
- Differ in quantity, quality and cost between countries. 🗸🗸
- Some countries have highly skilled, well-paid workers with high productivity levels, e.g. Switzerland. 🗸🗸
Technological resources
- Are available in some countries that enable them to produce certain goods and services at a low unit cost, e.g. Japan. 🗸🗸
Specialisation in the production
- Certain goods and services allows some countries to produce them at a lower cost than others, e.g. Japan produces electronic goods and sells these at a lower price. 🗸🗸
Capital allows developed countries
- Enjoy an advantage over underdeveloped countries. 🗸🗸
- Due to a lack of capital, some countries cannot produce all the goods they require themselves. 🗸🗸
ADDITIONAL PART
- Buying and selling goods and services from other countries: 🗸🗸
- The purchase of goods and services from abroad that leads to an outflow of currency from SA- Imports (M). 🗸🗸
- The of goods and services to buyers from other countries leading to an inflow of currency to SA – Exports (X) 🗸🗸
- Different factor endowments mean some countries can produce goods and services more efficiently than others- specialisation is therefore possible: 🗸🗸
Absolute Advantage:
- Where one country can produce goods with fewer resources than other. 🗸🗸
Comparative Advantage:
- Where one country can produce goods at a lower opportunity cost it sacrifices less resources in production. 🗸🗸
CONCLUSION
International trade is important of countries to survive economically, as barriers to trade would disadvantage all countries, due to their interdependency globally. 🗸🗸
[Any other relevant higher order conclusion]
[Max 2]