Saturday, 12 July 2014 10:50




International Trade is an important aspect of the new globalised world. The trade in contemporary context plays an important role in the country’s economic growth. There are many important terminologies that we generally come across.

Some of these terms are defined below:

Comparative advantage: Comparative advantage is the ability of country to produce a good at a lower cost relative to other goods in comparison to another country. This entails gains for trade between the two countries.

Exchange rate: The price of a country’s currency in terms of other country’s price through fixation by central bank or determined through free market forces.

Fixed exchange rate: The exchange value of a national currency fixed in relation to another (usually the U.S. dollar), not free to fluctuate on the international money market.

Free trade: Free trade is a trade regime under which the goods are imported and exported without any restrictions imposed in the forms of tariffs, quotas, or other restrictions.

Free-trade area: It is a region demarcated in the form of economic integration where free internal trade among member countries exists. Also in FTAs each member is free to levy different external tariffs against non-member nations.

Free-market exchange rate: Rate determined solely by international supply and demand for domestic currency expressed in terms of internationally acclaimed currency such as dollar.

General Agreement on Tariffs and Trade (GATT): An international body was established in 1947 to negotiate the ways and means of reducing tariffs on internationally traded goods and services. Its major success was achieved in 1967 during the so-called Kennedy Round of talks when tariffs on primary commodities were drastically slashed and then in 1994 with the signing of the Uruguay Round agreement. This international trade regime was replaced in 1995 by World Trade Organization (WTO).