Browsing Category

International Economics

Absolute Advantage

According to Adam Smith (who is regarded as the father of modern economics), countries should only produce goods that they have an absolute advantage in. A country is said to have an absolute advantage if the country can produce a good at a lower cost than another. Furthermore, this means that fewer resources are needed to provide the same…
Read More...

Exchange Rate

The exchange rate of a currency is the price a currency expressed in terms of another currency. Ex: $1 is worth €0.82 (07/15/12). The foreign exchange market is a market where people exchange currencies for other currencies. In this market, all buyers are also sellers since they are buying in one currency and selling another.Types of…
Read More...

Global Labor Arbitrage

Global labor arbitrage is where, as a result of the removal or reduction of barriers to international trade, jobs move to nations where labor and the cost of doing business (such as environmental regulations) is inexpensive. The alternative is impoverished labor moves to countries with higher paying jobs.Two common barriers to international…
Read More...

Trade Finance

Banks involved in commercial lending provide a wide range of financing packages for international trade, commonly called trade finance. Trade finance not only assists the buyer in financing its purchase but also provides immediate cash to the seller for the sale. This type of financing is profitable for the lending institution. This mechanism is…
Read More...

The Non-Availability Approach

The Non-Availability Approach explains why a country imports the goods that are not available at home. It was conceptualized by Irving Kravis. There are two kinds of unavailability - absolute and relative.Absolute UnavailabilityThe presence or absence of natural resources could easily be fitted into the Heckscher-Ohlin model.…
Read More...

Letters of Credit

Letters of credit are an obligation of a bank, usually irrevocable, issued on behalf of their customer and promising to pay a sum of money to a beneficiary upon the happening of a certain event or events. Letters of credit are the substitution of the credit and good name of a bank for that of their customer, permitting the customer to do business…
Read More...