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.
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.
Capital and current accounts are the two components used when calculating a nation's balance of payments.
Globalization refers to the increasing interconnectedness of international trade, and it is driven by technology and a reduction in trade barriers.
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.