Group Members: Pradeep Choudhary Kunal Joshi Monica Jain Omkar palsuledesai Ragini Pandey Vijay Gopalakrishnan

Introduction (VIJAY)
The international economy is very complex. Each country has a unique pattern of trade. But every one of them must benefit from the trading in order for them to do that. The following example presents a hypothetical example of two countries: Japan and China both producing fish and cloth, and assuming labor is the only input. The distribution of economic resources and technological levels among nations are different. International trade is a method which enables nations to specialize and increases the productivity of their resources. Therefore, nations production capacities can be increased, their production possibility frontier will move rightward.

Comparative Advantage (VIJAY)

Absolute advantage is determined by comparing the absolute productivity in different countries of producing each good Comparative advantage is determined by comparing the opportunity cost of each good in different countries.

for example:
Output per worker per day in either fish or cloth
JAPAN FISH CLOTH 8 4 CHINA 4 3

Explanation (VIJAY)
Japans opportunity cost of producing 1 unit of fish (in terms of cloth given up) = 4/8=0.50 Chinas opportunity cost of producing 1 unit of fish (in terms of cloth given up) = = 0.75 Japans opportunity cost of producing 1 unit of cloth (in terms of fish given up) = 8/4 = 2 Chinas opportunity cost of producing 1 unit of cloth (in terms of fish given up) = 4/3 = 1.3

Why does International Trade exist ??? (PRADEEP)

Uneven distribution of natural resources in different countries. All countries possess diverse strengths and weaknesses in terms of land, labour, capital and technology. By focusing on industries with comparative advantage, cost and operations efficiencies are reaped via specialization. It reduces dependency on domestic market by expanding customers demand in other countries. It enhances economic growth and contribute significantly to the countrys Gross Domestic product.

(PRADEEP)

OBJECTIVE (PRADEEP)
HIGHER RATE OF PROFIT
NEARNESS TO RAW MATERIAL LIBERALIZATION & GLOBALIZATION

EXPAND PRODUCTION CAPACITIES

HIGH COST TRANSPORTATION

INCREASE MARKET SHARE

SEVERE COMPETITION IN HOME

POLITICAL STABILITY

TARIFFS & IMPORT QUOTAS

LIMITED HOME MARKET

AVAILABILITY OF TECHNOLOGY & HUMAN RESOURCE

BENEFITS (OMKAR)
Choice of goods
Competition Specialization

Economic interdependence

MULTINATIONAL COMPANIES (OMKAR)

Impacts: (OMKAR)

PEST (OMKAR)
It's actually a tool used for understanding the growth of a business, including competitors'. These four letters mean: POLITICAL ECONOMICAL SOCIAL TECHNOLOGICAL

OPPORTUNITIES AND THREATS OF AN INTERNATIONAL TRADE (rAGINI)

THREATS

(rAGINI)

(rAGINI)

Barriers Quotas Subsidies Exchange Control Non-barriers Barriers

Economic Impacts Of BARRIERS (rAGINI)

When a barriers are imposed, domestic consumption declines due to higher prices. Domestic production will rise because of the higher price.

Imports will fall.

Government barriers revenue will represent a transfer of income from consumers to government.

Indirect effects also may occur in that relatively inefficient industries are expanding and relatively efficient industries abroad have been made to contract.

Exchange Rate (MONICA)

Foreign exchange markets enable international trade to take place by providing markets for the exchange of national currencies. A U.S. firm which sells goods to a British firm needs to exchange the check (in pounds) sent by the British company into dollars. U.S. exports create a demand for dollars and a supply of foreign money, pounds in this case. On the other hand, imports create a supply for dollars and a demand of foreign money.

Variable Exchange Rate (MONICA)

The freely floating exchange rates are determined by the forces of demand and supply. The intersection of supply and demand curves for a currency will determine the price or exchange rate. Theoretically, variable rates have the virtue of automatically correcting any imbalance in the balance of payments.

Fixed Exchange Rate (MONICA)

If the government offers to buy and sell its currencies at a set price, it is imposing a fixed exchange rate. A nations reserves are used to alleviate imbalance in the balance of payments, since exchange rates cannot fluctuate to bring about automatic balance. Domestic macroeconomic adjustments may be more difficult under fixed rates.

Managed Floating Exchange Rate (MONICA)

The current system is a managed floating exchange rate system in which governments attempt to prevent rates from changing too rapidly in the short term. Since 1987, the G-7 nations ( U.S., Germany, Japan, Britain, France, Italy and Canada) have periodically intervened in foreign exchange markets to stabilize currency values.

ECONOMIES OF SCALE (KUNAL)

Purchasing Economies Marketing Economies Financial Economies Managerial Economies Human Relations Decisions and Co-ordinations External Diseconomies

The Balance of Payments (KUNAL)

The Balance of Payments is the statistical record of a countrys international transactions over a certain period of time presented in the form of double-entry bookkeeping. They are composed of the following:
The Current Account The Capital Account The Official Reserves Account

(KUNAL)

Current account (export and import)

Capital account (purchase of US assets by foreigners and foreign assets purchased by US residence)
Official reserve account ( US holding of foreign currencies and US currency held by foreign governments)

CONCLUSION (KUNAL)
With trade, each nation specializes in producing the commodity of its comparative advantage and faces increasing opportunity costs. Specialization in production proceeds until relative commodity prices in the two nations are equalized at the level at which trade is in equilibrium. By the trading, each nation ends up consuming on a higher indifference curve than in the absence of trade. With increasing costs, specialization in production is incomplete, even in a small nation. The gains from trade can be broken down into gains from exchange and gains from specialization in production.

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