Summary
International trade refers to trade between countries. It involves the exchange of goods and services across borders. The Balance of Trade (BoT) records the difference between exports and imports of visible goods. The Balance of Payments (BoP) is a broader concept that records all economic transactions between a country and the rest of the world, including trade in goods, services, and capital flows. Key components of BoP are the Current Account and Capital Account. Concepts like Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are crucial for understanding capital flows. Exchange rates determine the value of one currency in terms of another.
Must Know Points
- International Trade is trade between countries.
- Balance of Trade (BoT) = Exports - Imports (of goods only).
- Balance of Payments (BoP) records all economic transactions with the world.
- Current Account includes trade in goods, services, and unilateral transfers.
- Capital Account includes foreign investments (FDI, FII) and loans.
- FDI is long-term investment in business; FII is short-term investment in financial markets.
- Exchange Rate is the price of one currency in terms of another.
- Devaluation is a deliberate reduction in currency value by the government.