International Trade

International trade is advantageous to all counties. 

Resources are unevenly distributed between the countries of the world. This unequal distribution enables countries to enjoy absolute or comparative advantage in the production and trade of certain products or goods in international markets. 

Watch this video by lostmy1 to understand absolute and competitive advantage:

Countries specialize in the production of certain goods and use the income from those exports to finance the importation of goods and services they need.

Prices are determined in these markets just as in most local markets. Here one should take note of the various currencies and exchange rates. Various exchange rate regimes must be considered, like fixed or floating exchange rate regimes. South Africa has a controlled floating single exchange rate regime. The balance of payments is the account that records the country’s international transactions with the rest of the world. The balance of payments is divided in various separate accounts – for example, the current account that records the trade in goods and services. The result of these accounts is the change in gold and other foreign exchange reserves, which represents the total balance of the balance of payments.