Several basic concepts are important for understanding international trade. So, we discuss here the basic concept of international business in detail below:
Table of Contents
The basic concept of international business
- Exporting and Importing
- The balance of Trade
- The balance of the Payment
- Exchange Rate
Exporting and Importing
Exporting is concerned with the selling of domestic goods in another country. Importing is concerned with purchasing goods made in another country.
The balance of Trade
The Balance of trade represents the difference between the visible export and import. It may be shown in the following way.
- Balance of Trade= Visible export-Visible import.
- Favorable balance of trade: Favorable balance of trade indicates that a country’s export is higher than its import.
- Unfavorable balance of trade: When a country’s imports are higher than its exports, then it is called the unfavorable balance of trade.
The balance of Payment
A Balance of payment represents the difference between visible plus invisible export and visible plus invisible import. It may be shown by the following equation.
- Balance of payment = (Visible export + invisible export)-(Visible import +invisible import)
- Favorable balance of payment: If more money is flowing in the country than flowing out of the country.
- Unfavorable balance of payment: An unfavorable balance of payment exists when more money is flowing out of the country than flowing in.
Exchange Rate
It is the rate at which one country can exchange its currency with another country’s currency. The exchange rate is of four types:
- Devaluation: Reducing the value of the nation’s currency in relation to currencies of other nations.
- Revaluation: revaluation increased the value of a country’s currency in relation to that of other countries.
- Fixed exchange rate: It is an unvarying exchange rate, which is set by the government.
- Floating exchange rate: An exchange rate that fluctuates with market conditions.
Oanda.com is providing us with a great currency converter to know the primary exchange rate. You should contact your local bank to know what is the exact exchange rate.
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