Chapter 13

International Economics
No nation was ruined by trade.
- Benjamin Franklin

1.
2.
3.
4.
5.
6.
7.
8.
9.

Mercantilism
Law of Absolute Advantages by Adam Smith
Law of Comparative Advantages by David Ricardo
Balance of Payments
Foreign Exchange Market
Foreign Exchange
Arbitrage
Currency Appreciation vs Currency Depreciation
Types of Trade Restrictions
1. Tariff
2. Qouta
3. Government Regulations
4. Exchange Controls

The rules of trade between nations at a global level are

governed by the World Trade Organization ( WTO). Its
principles regarding multilateral trading system should be
without discrimination, freer, predictable, more
competitive, and more beneficial for less developed
countries. Since 1995, after the accession of the
Philippines to the WTO, it is becoming more immersed
with globalization.

Selected Theoretical Bases of International Trade

1. Mercantilism (Thomas Munn)
2. Law of Absolute Advantage (Adam Smith)
3. Law of Comparative Advantage (David Ricardo)
4. Heckscher-Oblin (HO) Theory
5. Heckscher-Oblin-Samuelson (HOS) Theorem

The Need for Trade Protection of Developing

Nations
1. Tariff
tax on imported products. It raiases the cots
to foreign suppliers and reduces their revenues
thereby reducing the import spending of the
country.
2. Qouta
is a fixed limit placed on the quantity of
imports allowed into a country.

3. Government Regulations
these are forms of protections arising from
health and safety standards and preservation of
the environment.
4. Exchange Controls
the Bangko Sentral ng Pilipinas restricts the
sale of dollars to importers.

Foreign Exchange Market

- is the organizational framework wherein individuals,
businesses, and banks buy and sell foreign exchange. The
main function of foreign exchange is to transfer funds of
purchasing power from the Philippines to other
countries or vice versa.
Foreign Exchange Market
- is the price of a unit of foreign currency in terms of the
domestic currency.

Foreign Exchange Arbitrage

- is the buying of a currency when its price is low and
selling it when it is high.
Currency depreciation/Currency Appreciation
- When the value of a currency declines/increases because
of market forces (demand and supply factors)
The Balance of Payments
- is a summary of the economic transactions of a country
with the rest of the world, for a specific time period.

Alena Jimbee L. Mercado BSHRM