International Trade and Finance (Essay Sample)

International Trade and Finance
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International trade is the exchange of services and goods between countries. It is the import and export of products and services among different countries (Marcus and Marcus, 1965). The business is similar to the basic economic principles as the standard exchanges like those analyzed by the model market. The trade has flourished over the years due to the increasing benefits it has offered to most of the countries. However, the countries participating in international trades have protectionist policies for each particular service and goods they import. The countries governments have put legislations that govern the process of importations and exportation. These laws take the form of import tax or limiting some goods and services imported. Some, however, take the form of voluntary restrictions on exports and certain barriers. There exist various ways through which the government can intervene the international trade.
Sanctions and Bans
The closing of foreign trades altogether, the government may hinder international trade with a possible aim to further political goals internationally. These measures enacted by individual governments or other foreign bodies (Young, 1938). Other goods banned for health and safety reasons.
Quotas
It is the quantity restrictions on the imports and exports by the government (Young, 1938). By imposing quotas the government, transfers resources from their domestic consumers to the existing domestic producers.
Tariffs
These are the amounts imposed by the governments that each and every business that does importation must pay. The major implication of tariffs is that the price that the foreign sellers receive is less compared to the price that the domestic consumers pay (Young, 1938). Taxes are designed to protect domestic producers. It is because a tax put on foreign products induces a substitute towards the other local goods the government collects revenue when a duty imposed on a particular product unlike when quotas imposed the government does not collect taxes.
However, international trade might be significant to the country's economic growth, not everyone in both the nations doing trade will win. The trade has both winners and losers that exist in the market.
Gainers
The probable winners in the international trade are the consumers that occupy the nation that imports the goods and the producers that do the selling in the foreign country (Marcus and Marcus, 1965). The sellers gain producer surplus while the buyers acquire consumer surplus.
Losers
The losers existing in the international trade are the consumers in the exporting nation and the producers that occupy the importing country (Marcus and Marcus, 1965). The producer exposed towards a greater competition for their domestic produce that will have lower prices after importation of the foreign products. The consumer in the selling nation also faces higher prices due to the competitions for the existing domestic production.
Risk of relocating Companies to emerging countries
When companies invest abroad, their shareholders and the people living the country stand to benefit. However, no matter how good the apparent fit between what the foreign countries provides and the what the host gets, success is usually far from assured. Various issues like political events and elections, the crisis in the economy and the ever-changing societal attitudes disrupt the laid plans in most emerging economies (Marinov and Marinova, 2012). Other issues such as taxations imposed on executive compensations and proper scope of financial regulations have turned to foreground in the wake of the trade crisis. It has led to international differences in policies and opinions. Politics in these countries struggle to bring about balance demands with an aim of punishing the traders perceived as responsible for the rising fears of innovation and the flight of financial capital and human. Therefore, the multinational companies that seeks in trading in these developing economies need to have a strong competitive edge. History has it that the biggest risk faced by foreign investors arose from the immature and volatile political systems of these developing countries (Marinov and Marinova, 2012). The governments also changed the laws and regulations that governing investments. At times, they even failed to enforce the required legislations for international trade. It reduces the investor's financial returns and the profits.
Other foreign firms that get involved in international trade tend to use a particular combination of legal contracts and financial instruments to protect their income streams in the investments. These applied approaches offer little protection to these foreign companies against the policy risk. For starting companies, the legal contracts tend to be useful only when they enforced. Shifting laws and regulations can turn to render the companies void.
Financial markets usually live in terror when the governments raise interest rates. However, lowering interest rates is lethal to the country's economy. Low-interest rates signal arising troubles, and they tend to inflict pain (Kenen and Woodrow Wilson School of Public and International Affairs, 1975). When the interest rates in Japan are lowered the Japan Yen will depreciate, this will to fewer exports but more importation. It causes the prices of their produce to fall. However, when prices are lower the dollar depreciates in the U.S, and there will be a shift in the demand for their products. More investors will deal in purchasing their commodities for trade.
If the U.S government imposes higher exchange rates, the dollar will appreciate. It is because the dollar will lead to fall in the other country's currency (Grath, 2008). The U.S will have more exports compared to the other countries.
Effects of higher exchange rate
The demand and supply for currencies and the outcome in the relative value of currencies affects the imports and exports demand in the international market. For example, a country possessing a high dollar has a larger ...