5. Answer the following questions:

1. What are imports?

2. What are exports?

3. When will there be an incentive to import the commodity?

4. When will there be an incentive to export the commodity?

5. What role does money play in international transactions?

6. What is a foreign exchange market?

7. What is the foreign trade balance?

6. Define the terms:

transportation costs import

reciprocal wants rate

exchange rate barter

coincident wants incentive

7. Translate into English:

1, Імпорт — це товари, які виробляються іноземною економікою, але споживаються особами в межах національ­ної економіки. 2. Якщо світова ціна товару нижча за внутрішню, існуватиме стимул Імпортувати його, купуючи в іноземного виробника. 3. Гроші знову-таки вирішують проблему потреб, що є взаємними або збігаються. 4. Складність виникає тому, що іноземні фірми хочуть, щоб їм сппачували гроші, які можуть використовуватися в їхній економіці. 5. Коли гроші, що використовуються під час обміну, відрізняються від гро­шей національної економіки, особа, одержавши плату в іноземній валюті, захоче обміняти її на національну. 6. Отже, міжнародна торгівля створює ринки для різних видів грошей.

5. Зміни в попиті та пропозиції на цих ринках змінюють курс обміну однієї валюти на іншу. 8. Різниця між вартістю екс­порту та імпорту становить баланс міжнародної торгівлі.

9. Якщо вартість імпорту перевищує вартість експорту, тоді баланс міжнародної торгівлі є дефіцитним. ,

Vui. Read and dramatize the following dialogue:

D.: Why do foreigners hold U.S. dollars?

M..* It is not clear why they have chosen to hold some dollars rather than exchanging all dollars for commodities produced within the U.S. or for their domestic currency. It is important to emphasize that the choice to hold dollars is one that foreigners, not U.S. citizens or the U.S. government, make.

D.: Would you explain some reasons for it?

M.: O.K.. I'll briefly note a few reasons why foreigners may want to hold dollars. First, the U.S. dollar is used as a kind of international money. For example, the Japanese producer of Hondas may require that British or French importers of Hondas pay for them in U.S. dollars instead of British pounds or French francs. To the degree that the U.S. dollar is used in these kinds of transactions, there will be a greater demand for dollars than simply the demand necessary to purchase exports from the U.S.

D.: Of course, if the dollar is the dominant currency in world trade, with the increasing volume of trade there will be an increase in the demand for the dollar.

M.: Well, you are quite right. Second, to the degree that the U.S. economy and political system are more stable than other economies or political systems, holding U.S. dollars may provide security in a world of turmoil. Similarly, if investments in one's own economy are highly risky (because of either economic or political instability) and the U.S. is viewed as more stable foreigners may want to invest in U.S. assets such as bank accounts, bonds, stocks or real estate.

D.: It seems to me that to make these kinds of investments, foreigners need U.S. dollars rather than their own currency and the demand for dollars will, once again, be greater than that which would occur because of exports alone. Are there any other reasons?

M.: Certainly. The third reason is that the U.S. government may pursue policies that make it more attractive for fo­reigners fo hold U.S. dollars or assets rather than the domestic currency or assets. For example, if U.S. banks are paying 10 percent interest while a bank in a foreign economy is only paying 5 percent, under certain circum­stances it will be advantageous for foreigners to have accounts in U.S. banks rather than in domestic banks.

D.: This will increase the demand for dollars in foreign exchange markets. Or the U.S. may have a lower or less erratic rate of inflation. I suppose, the fourth reason is the fact that a foreign government may consciously pursue policies that encourage exports to the U.S. but discourage imports from the U.S. Such policies will produce a U.S. trade deficit. These kinds of policies, however, can only lead to persistent trade deficits for the U.S. if the foreign government also pursues policies that increase the demand for U.S. dollars by foreigners (for example, the government might itself intervene in the foreign exchange market as a demander of dollars).

M.: For each of these reasons the demand for U.S. dollars (or the supply of a foreign currency) will be substantial and may increase even though the U.S. may be running a trade deficit.

D.: To cut a long story short, the result is: the U.S. runs a persistent trade deficit and the U.S. dollar does not depreciate at all or by enough in foreign exchange markets to bring exports into balance with imports.