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Basics of Foreign Trade and Exchange

Basics of Foreign Trade and Exchange. Why Nations Trade. Benefits of Specialization Law of Comparative Advantage Benefits of Diversity Competitiveness Knowledge-Intensive Products Contributed to a U.S. Export Boom Economies of Scale. Free Trade vs. Protectionism.

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Basics of Foreign Trade and Exchange

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  1. Basics of Foreign Trade and Exchange

  2. Why Nations Trade • Benefits of Specialization • Law of Comparative Advantage • Benefits of Diversity • Competitiveness • Knowledge-Intensive Products Contributed to a U.S. Export Boom • Economies of Scale

  3. Free Trade vs. Protectionism • Arguments for Protectionism • Methods of Protectionism • Tariffs, quotas, subsidies • MFN • International Organizations Seek Cooperation on Trade Issues • Arguments for Free Trade • Measures of Trade • Trade Surplus, deficit • Current Account, Capital Account • Statistics can have different interpretations

  4. Foreign Currency Exchange • Market Participants • Banks, Brokers, Central Banks • Foreign Exchange Rates • J-curve explains lag between currency depreciation and improvement in the current account • Determination of Foreign Exchange Rates • Political instability - U.S. dollar as “safe haven” • Interest rates

  5. Foreign Currency Trading • Trading between banks • Hard & Soft currencies • Types of transactions • Spot • Forward • Future • Option

  6. Floating and Fixed Exchange Rates • Gold exchange standard • Bretton Woods 1944 • Beginning of Floating Exchange Rates

  7. The Role of Central Banks • Intervention • Federal Reserve Bank of New York • European Monetary System • Bank of Japan • Concerns about Eurocurrency

  8. Working Across Borders • Multinational and International companies

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