Visible and invisible trade.
Foreign trade is the exchange of goods between nations. We have 2 kinds of foreign trade: visible trade, which involves the import and export of goods, and invisible trade, which involves the exchange of services between nations. For example, Brazilian coffee is usually transported by ocean because it is the cheapest kind of transportation. Nations such as Greece and Norway have large maritime fleets, which can provide this transportation service. The prudent exporter purchases insurance for his cargoesí voyage. While at sea, a cargo is vulnerable to many dangers, the most possible, that the ship may sink. In this event, the exporter who has purchased insurance is reimbursed. Otherwise, he may suffer a complete loss. Insurance is another service in which some nations specialize.
Another form of invisible trade is tourism. As some nations possess little in the way of exportable commodities, but they have a mild and sunny climate.
In the past twenty years, millions of workers from the countries of southern Europe have gone to work in Germany, Switzerland, France and Scandinavia. The commissions and salaries that are paid to these people are another form of invisible trade. The workers send money home to support their families. These are called immigrant remittances. They are very important kind of invisible trade for some countries, both as imports and exports.
4. A nationís balance of payments.
A balance of payments is ŗ record of complex transactions.
These transactions include payments for the country's exports and imports of goods, services, and financial capital. After calculation all of the entries in its balance of payments a nation has either a net inflow or a net outflow of money.
The nationís reserves may be compared to an individualís savings. For a nation, they are maintained in holdings of gold and official deposits in foreign currencies. A deficit in the balance of payments can be accommodated by drawings on (removing some of) the reserves. But if a nationís balance of payments continues in deficit for some time, then the reserves will be insufficient to cover further withdrawals, and additional measures must be taken.
The most direct means of correcting a deficit in the balance of payments is reduction of imports. This can be accomplished by imposing tariffs, quotas (import restrictions), or both. The net effect is the reduction of the nationís outflow of money. Other measures may limit invisible trade expenditures. For example, citizens may be prohibited from taking more than a certain amount of money with them when they travel abroad.
Capital for investments abroad can be restricted by requiring government approval for any new foreign investments.
If these measures are insufficient, a country may devalue its currency. A nation must at all times combine devaluation with other effective measures to balance its economy, resulting in a reasonable level of employ meant and low rate of inflation.
Date: 2015-12-11; view: 3076