Explore topic-wise InterviewSolutions in Current Affairs.

(b) Devaluation

Spot exchange rate is that exchange rate which happens to prevail in the market when transactions occur.

Sale and purchase of goods and services within the geographical boundaries of a nation is called internal trade.

Purchasing of goods and services from other countries by one country is called import and selling of goods and services to other countries by one country is called export.

International trade : In International trade, goods and services are exchanged among the countries. Trade beyond the goegraphical boundaries of a country is called International trade. 

For example- trade between India and USA is an example of International trade. In simple language, we call it foreign trade.

Need for International trade
We may understand the importance of international trade from the following points :

(i) All countries are not equally competent to produce all types of goods. Therefore, they have to depend on other countries for obtaining the goods of their need.

(ii) Natural resources of the world are unequally distributed. For example, fertile land, minerals, forests resources and climatic conditions, etc. are unequally distributed. Therefore, each country tries to specialize in the production of that commodity in which it has natural endowment. It exports these goods to earn profit. On the other hand, it imports those commodities for which it does not have a natural endowment. In this way, every country tries to minimize the cost of production and to gain from International trade.

(iii) Due to the International trade, advanced technology is obtained. This transforms developing and backward countries into advanced countries.

(iv) Domestic, competition also increases due to International trade. 

They adopt two measures:

(a) Improving the quality of goods.
(b) Increasing sales volume.

(v) Presently, income from international trade is a large part of Gross National Product. In all the developing countries, International trade is an important component of their development.

Only visible items are included in balance of trade.

It refers to the ratio of international and domestically demanded price in one currency.

Devaluation means decrease in value of the country’s currency in terms of foreign currency.

When a country’s export is more than its import, it is called foreign trade surplus, and when a country’s export is less than its import, it is called trade deficit.

1. Increase in international trade.
2. Increase in foreign capital investment.

Visible items means those commodities which are physical in nature and can be seen and measured. The value of import and export of visible items is included in the Balance of Trade. In this way, only visible items are included in the Balance of Trade.

Following are the differences between open economy and closed econmy :

Open Economy:

1. Open economy has trade relations with the remaining world.
2. Development opportunities are more in an open economy.
3. There can be a difference between domestic income and national income in this economy.

Closed Economy:

1. Closed economy does not have any trade relation with the remaining world.
2. Development opportunities are less in a closed economy.
3. Domestic income and national income are same in this economy.

Balance of Payment is a method to record the payments for international transactions for any country within a specific time period. 

It can be divided into two parts :

1. Current Account
2. Capital Account.

Current Account is a part of Balance of Payment in which all the payments within the specific time limit are included. The biggest part of current account comprises of import and export. Other items of current accounts are services and gifts.

Deficit balance of payments shows increase of exports over imports.

1. Tarariff (commercial rate)
2. Quota.

1. In Fixed Exchange Rate System, there will be no speculation in foreign exchange market.
2. In fixed exchange rate system, international trade increases.

Open economy provides the investors choice of selection between domestic and foreign properties which increases competition in the market.

1. Both visible and invisible itmes are included in this payment.
2. Receipts and payments are recorded through double entry system.

1. For making payments of imports.
2. For making international payments.

Open economy is an economy in which one country trades goods and services with other countries. 

Following are the two ways to extend our choice :

1. Choice of selection between domestic goods and foreign goods.
2. Investors can choose between domestic and foreign assets.

Tax imposed on goods and services while crossing the border of any country.

When the central bank of any country fixes the exchange rate at certain point, it is said to be the Fixed Exchange Rate System. ,
Following are the two benefits of fixed exchange rate system :

1. Due to fixed exchange rate, international trade increases.
2. Due to this system, foreign investment also increases.

The rate at which the goods are exchanged with other country’s goods.

(c) Foreign Exchange System

(c) Fixed exchange rate

Correct option is (3) a, c and d

(b) Transactions of exchange of foreign currencies are effected

Financial transactions of one’s country occur with rest of the world in international trade. Record of these transactions is kept in Balance of Payment account. Therefore, Balance of Payment means a method to record the payments for international transactions for a country in one financal year.

It is the economy of that country which does not have business and monetary transaction relations with the .other countries. In these countries, population of the country uses only those products and services which are produced within the country.

(a) Balanced

(d) By forces of demand and supply

Economic Growth. 

Economic growth means an increase in the real national income of the country. In the above illustration, since the country’s production of goods and services has increased, it is rightly said to be economic growth.

There is an inverse relation between demand of foriegn currency and exchange rate.

The value or worth that product or service would bring to someone if sold.

(c) Purchasing power parity

Balance of payment is a wide concept. In this, both visible and invisible items are included.

When foreign payments are more than the foreign receipts, it is termed as loss in current account.

Capital Accounts keep the records of financial transactions. All the international transaction records of assets are kept in this account.

It is the economy of that country which does not have business and monetary transaction relations with other countries.

Main elements of Current Account are divided into three parts :

1. Visible trade : All items that are physical in nature are included in this trade.

2. Invisible trade : In this, only trade of services is included, like-banking, insurance, etc.

3. Current transfer payments : In this, foreign gifts, donations, military help, technological help, etc. one-sided transactions are included. Therefore, it is also known as one-sided transaction.

Balance of Trade means transactions of all the of visible items traded, within one financial year. In other words, it means keeping a systematic record of visible items of one country. Invisible items are not included in Balance of Trade.

When export is more than the import in international trade.

Balance of Payment is a method to record the payments for an international trade transaction for any country.

1. lt helps in balancing the exchange rate on international level.
2. Due to this rate system, the trend of speculation is discouraged.

To put a stop on the international trade and banning the import and export of goods and services is known as protectionism.

1. Fixed exchange rate increases the international trade.
2. In helps in providing subsidy for food and investment for the remaining world.
3. It helps in increasing the foreign exchange reserve.

If the bank rates get high, then exchange rates are favourable, and if the bank rates are lower, then exchange rates become unfavourable.

Loss is covered in current account by the flow of net capital.

Fixed rate of exchange refers to rate of exchange as fixed by the government.