International trade is a vital consideration in macroeconomics and for policymakers. The modern economy is a global economy, with nations and companies from across the globe engaging in trade with one another. International trade requires international currency exchange, which can have major implications for domestic economies. A surplus or deficit in trade can also affect the health of an economy and the wealth of a nation's citizens. Surpluses and deficits are calculated by adding the nation's capital and current accounts together.
At A Glance
- International currency trade is carried out at currency exchange markets. These markets set the exchange rate for currency trading.
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Currency markets include spot trades, which happen immediately, and forward and swap trades, which are set for future dates.
- A country's balance of trade may be said to be in deficit or surplus, depending on whether the country imports more than it exports.
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Capital and current accounts are the two components used when calculating a nation's balance of payments.
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Globalization refers to the increasing interconnectedness of international trade, and it is driven by technology and a reduction in trade barriers.
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Free trade agreements are agreements that allow participating nations to trade without tariffs and quotas.
- Globalization and free trade allow nations to use their comparative advantages effectively. This can lead to an increase in wages, although the effects on low-skilled jobs may not be positive.
- When trade occurs with nations that have lower living standards, it tends to benefit their economy and raise living standards. However, trade does not necessarily raise the living standard of a country.
