Trade & Currency: key terms, formulas and examples
Trade connects economies through exports, imports, tariffs, quotas and trade agreements. Comparative advantage says countries should specialize in what costs them least.
Example
A new tariff makes imported parts more expensive.
Takeaway
Check duties, rules and currency risk before entering a market.
Key terms
- Tariff
- A tax on imported goods.
- Exchange rate
- The price of one currency in another.
- Trade deficit
- Imports exceed exports in a period.
- GDP
- Total value of goods and services a country produces in a period.
- Export
- Selling goods or services to buyers in another country.
- Import
- Goods brought in from another country.
- Quota
- A limit on how much of a good can be imported.
- Free trade agreement
- A deal that removes most trade barriers between countries.
- Customs duty
- A tax collected on imported goods.
- Embargo
- An official ban on trade with a country.
- Offshoring
- Moving business activities to another country.
- Comparative advantage
- Producing something at a lower opportunity cost than others.
- Trade barrier
- A rule that makes trade harder.
- Protectionism
- Policies that shield local industry from imports.
- Trade surplus
- When exports exceed imports.
- Letter of credit
- A bank's promise to pay a seller.
- Trade war
- Countries raising tariffs against each other.
Formulas
Trade balanceX − M
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