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Business Economics: International Trade | CA Foundation Chanakya 2.0 Batch 🔥

CA Wallah by PW・175 minutes read

Currency devaluation impacts import and export prices, enhancing competitiveness in international markets. Depreciation occurs due to increased demand from imports, leading to a stronger home currency value.

Insights

International trade involves transactions of goods, services, and resources between countries, impacting residents of different nations.
Liberal trade policies aim to reduce import and export restrictions to foster global economic development.
Various theories like Absolute Advantage and New International Trade Theory explain the benefits and mechanisms of international trade.
Tariffs and duties, as well as non-tariff measures, are crucial instruments in regulating international trade.
Exchange rates, managed by governments, play a vital role in maintaining stability and influencing trade dynamics.

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Recent questions

What is the focus of the Chanakya 2.0 series?
Chapter Nine of International Trade in business economics.
What are the main units covered in the chapter on International Trade?
International Trade, Trade Negotiation, Trade Policies, Exchange Rates, and Capital Movement.
How does international trade differ from domestic trade?
Legal systems, documentation, and trade barriers.
What are the benefits of international trade?
Access to new markets, materials, technological innovations, and growth in innovative services sectors.
What are the key theories that explain international trade?
Absolute Advantage, Comparative Advantage, New International Trade Theory (NTT), and Hexer-Olin theory.

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Summary

00:00

"Chanakya 2.0: International Trade Essentials"

CA Jasmeet Singh welcomes everyone to the Chanakya 2.0 series, focusing on Chapter Nine of International Trade in business economics.
The chapter covers five units: International Trade, Trade Negotiation, Trade Policies, Exchange Rates, and Capital Movement.
Each unit contains fact-based and data-based information that needs to be learned.
International trade involves the exchange of goods, services, and resources between countries, with transactions occurring between residents of different countries.
Multiple currencies are involved in international trade, with regulations and customs varying between countries.
Liberal trade policies aim to reduce restrictions on import and export to promote global economic development.
International trade differs from domestic trade in terms of legal systems, documentation, and trade barriers.
Tariffs and duties are imposed on imports and exports in international trade, while domestic trade in India is governed by GST.
International trade boosts economic efficiency, leading to economic growth, higher income, and reduced chances of domestic monopolies.
Benefits of international trade include access to new markets, materials, technological innovations, and growth in innovative services sectors.

18:36

"Global Trade Impact on Economy and Business"

Elimination from the competition for recipients of the message
Closure of business leading to destruction of powerful economy
Shift from domestic to global market production causing environmental damage and resource depletion
Impact of recession in the USA on India's IT industry
Layoffs in IT industries during economic downturns
Impaired economic autonomy due to excessive exports leading to dominance by other countries
Importance of transparency and predictability in trade policies with trading partners
Potential negative impact on business and economy due to changes in US government policies
Mercantilist view of international trade emphasizing surplus in exports over imports for economic growth
Theory of Absolute Advantage by Adam Smith focusing on mutual benefit in trade based on comparative advantages in production

39:23

International Trade Theories: Wealth through Specialization

Labor is mobile within countries, but Adam Baba cannot go to another country.
Trade between countries can increase if each country has an absolute advantage in producing one commodity.
The Absolute Advantage Theory states that even if a country is not good at anything, trade can still occur.
Comparative advantage theory explains that a country should focus on producing goods where it is more efficient compared to others.
The theory emphasizes that a country should export goods where it has the greatest absolute advantage.
The cost of producing goods determines trade, focusing on comparative advantage.
The theory of Absolute Advantage states that increasing exports and decreasing imports can enhance national wealth and power.
The theory explains that a country can increase its wealth by specializing in producing goods more efficiently than others.
International trade introduces better technology, product variety, and enhances efficiency.
The Hexer-Olin theory emphasizes that countries should produce goods based on their abundant resources, either labor or capital.

01:00:56

New International Trade Theory and Tariffs

New International Trade Theory (NTT) emerged in 1980, developed by Paul Krugman.
NTT is based on the concept of imperfect competition and increasing returns, emphasizing the advantage of economies of scale.
The theory suggests that international trade benefits both countries involved, promoting competition and economy of scale.
NTT proposes that traded goods often come from industries with oligopolistic characteristics and external economies.
The theory contrasts with the idea of international trade at a Pareto Optimum, focusing on maximizing overall welfare without harming individual welfare.
The Entity Theory emphasizes two key concepts: the advantage of economies of scale and the network effect.
Trade policies, including tariffs and non-tariff measures, are crucial instruments governments use to regulate international trade.
Tariffs, such as custom duties, are financial charges imposed on imported goods to control imports and promote domestic industries.
Specific tariffs involve a fixed rate of duty, while ad valorem tariffs are based on a percentage of the value of the imported goods.
The main goals of tariffs are to raise revenue for the government and protect domestic industries by ensuring fair competition in the international market.

01:20:53

"Understanding Tariffs: Duties, Advol, and Quotas"

Duty of lakhs will be charged as advance payment.
The opposite of specific is advol, focusing on the value of the bicycle.
Specific duty is Rs. 000 for 100 imported bicycles.
Government offers a mixed tariff, charging either specific or adole tariff, whichever is higher.
Compound tariff includes both specific and adole duties.
Technical tariff imposes duties on components of imported products.
Tariff rate quota charges lower duty within the quota and higher duty outside it.
Most Favored Nation Tariff ensures the same duty for all WTO members.
Variable tariff equalizes the price of imported goods with domestic support price.
Preferential tariff lowers duty between countries with trade agreements.

01:42:26

"Tariffs: Legal Commitments and Trade Distortions"

Tariff involves legal commitments to WTO members regarding import duties on specific products
India, for example, sets a maximum import duty of Rs 15 on goods from WTO members
The bound rate commitment ensures that the import duty will not exceed 12% for laptops in India
The bound rate is a legal commitment to maintain a specific maximum rate for a particular product
Applied tariff is the actual duty charged on imports, which may differ from the bound rate
Prohibited tariffs are set so high that no imports can enter the country
Import subsidies encourage imports by providing financial support to importers
Tariffs are a response to trade distortions caused by foreign subsidies or dumping
Countervailing duties are imposed to counteract foreign subsidies given to exporters
Anti-dumping duties are applied when foreign goods are sold at lower prices than in their domestic market

02:01:36

Essential Import Regulations: Non-Tariff Measures

Non-tariff barriers and measures are essential for import regulations.
Non-tariff barriers are a subset of non-tariff measures.
Technical and non-technical measures are part of non-tariff majors.
Sanitary and Phytosanitary Measures are crucial for food imports.
Technical barriers to trade include labeling and radiation standards.
Non-automatic licensing and prohibitions limit import quantities.
Price control measures set minimum import prices for goods.
Financial measures regulate foreign exchange for imports.
Government procurement policies prioritize local goods over foreign imports.
Trade-related investment measures encourage domestic production of goods.

02:20:08

Trade Regulations and Policies in Brief

Duty of 10% charged for goods made in Sri Lanka, proof required; 15% duty for goods made in Singapore.
Rules of origin dictate importer must prove country of manufacture.
Safeguard measures taken by government if domestic industries suffer losses.
Embargo imposed if trade harming country or specific product; ban on imports.
Embargo can be for specific goods, countries, or all countries.
Government controls exports through bans on certain goods.
Export subsidies and incentives provided to promote maximum exports.
Export restraints imposed to limit quantity of goods exported.
Escalating tariff charges higher duty on finished goods than raw materials.
Anti-dumping duty imposed when goods exported below production cost.

02:38:59

Types of Trade Agreements and Benefits

Non-tariff measures should be kept to a minimum, especially quotas and country of origin regulations.
Different types of Regional Trade Agreements (RTAs) are crucial for exams, with unilateral trade agreements being one-sided benefits given by one country to others.
Unilateral trade agreements involve one country providing benefits without expecting any in return, exemplified by the USA-Nepal agreement on Pashmina shawls.
Bilateral trade agreements involve mutual benefits between two countries or trading blocks, setting trade rules.
Regional Preferential Trade Agreements focus on reducing trade barriers among a group of countries, like India, Sri Lanka, and Bangladesh.
Free Trade Areas eliminate tariffs and quotas among member states but maintain common external tariffs for non-members.
Custom Unions eliminate tariffs within the union but impose common external tariffs on non-members, like the European Union.
Common Markets allow free flow of goods, services, labor, and capital among member countries, exemplified by ASEAN.
Economic and Monetary Unions, like the European Union, use a single currency to facilitate trade and reduce financial and administrative expenses.
Common markets and single currencies within unions enhance trade activities and reduce foreign exchange issues, promoting smoother trade operations.

02:58:43

"European Currency, WTO, and Trade Principles"

Euro is the primary currency in Europe, avoiding conversion to other currencies in trade to prevent losses due to fluctuations.
The formation of the WTO replaced the GATT, aiming to monitor and regulate international trade more effectively.
GATT focused on reducing import duties and trade restrictions, leading to significant tariff reductions in various rounds of negotiations.
The WTO expanded beyond GATT's scope, covering intellectual property rights, services, and agricultural trade.
The WTO aims for fair, predictable, and free trade among its 164 member countries, promoting transparency and non-discrimination.
WTO principles include trade without discrimination, national treatment, free trade, predictability, and prohibition of quantitative restrictions.
Predictability in trade policies is crucial for stable business environments and investment growth.
The WTO prohibits quantitative restrictions, emphasizing the use of tariffs instead to maintain competition and quality in the market.
Member countries are bound by maximum tariff rates under the Most Favored Nation principle, ensuring fair trade practices.
Transparency in decision-making processes is essential for governments to justify trade-related actions and maintain trust in international trade relations.

03:17:45

"WTO: Guiding Trade Duties and Agreements"

To increase duty, contact the WTO for guidance.
Transparency is crucial in trade decisions among Members.
Progressive liberalization entails gradual changes.
Market access enhancement involves converting non-tariff barriers to tariffs.
WTO aims to liberalize imports gradually.
WTO focuses on health, environment protection in trade.
Dispute resolution is transparent and effective within WTO.
WTO agreements cover various sectors and areas.
Doha Round negotiations aim to revise trade rules.
Exchange rates can be fixed through market, fixed, or managed rates.

03:36:53

Government Intervenes to Manage Dollar Exchange

The government has set a maximum and minimum limit for the dollar exchange rate.
If the dollar rate falls below 80, the government will intervene by purchasing foreign currency.
If the dollar rate rises above 90, the government will intervene by selling dollars to decrease the rate.
The government's actions aim to maintain the dollar rate between 80 and 90.
Managed float is when the market determines the exchange rate with government intervention.
Fixed exchange rates provide stability, reduce risks, and promote trade and investment.
Real exchange rate considers inflation and purchasing power, affecting the exchange of goods.
The real exchange rate is calculated by multiplying the nominal rate by the domestic price level and dividing by the foreign price level.
Commercial banks and brokerage houses play a major role in the foreign exchange market.
Transactions in the foreign exchange market include current transactions settled immediately and future transactions settled on a future date.

03:57:10

Understanding Future Currency Transactions and Exchange Rates

Future transactions are contracts signed today but settled in the future, with rates determined at the time of settlement.
Forward rates are set for future transactions, with spot rates representing today's rates.
Forward premium refers to an increased rate in a forward contract, while forward discount indicates a reduced rate.
Currency futures are similar to share options, allowing trading in future currency values.
Forward contracts involve settlement and delivery on future dates, with transactions occurring in lots.
Vehicle currency is widely used to denominate international contracts, even if not the national currency of the parties involved.
Nominal exchange rates are determined by demand and supply in the market, influenced by various factors like imports, investments, and capital flows.
Depreciation occurs when a home currency weakens, while appreciation signifies a stronger home currency.
Devaluation is a deliberate downward adjustment in a currency's value by the government, affecting the economy in the short term.
Fluctuations in exchange rates impact imports and exports, with the supply and demand model influencing currency appreciation or depreciation.

04:17:55

Impact of Depreciation on Indian Rupee

Depreciation occurs when the demand curve shifts right, leading to appreciation of the Indian Rupee due to increased demand from excessive imports. Currency devaluation, exemplified by the government changing the value of the Rupee from ₹ to ₹ 80, results in imported commodities becoming more expensive and reducing international competition for domestic industries. This devaluation also impacts export prices, potentially lowering them and increasing international competitiveness.

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