1. Classical International Trade Theory

Mercantilism thoughts and ideas steered trade in Europe from the beginning of the sixteenth century until the end of the eighteenth century. In the beginning of the nineteenth century Adam Smith’s trade theory started to gain acceptance. According to mercantilism, welfare was based on the possession of gold and silver. Trade was seen as something good for a country. The disadvantage of mercantilism was that people thought that having more exports than imports, meant a better welfare for your country, as payment was made in metals. A surplus in exports would then mean more gold and silver. According to mercantilism it was believed that one country’s winnings would lead to another country’s losses, which meant that the economic policies were aimed at supporting export and putting restrictions on imports.

As mentioned earlier, Adam Smith’s trade theory was first accepted at the beginning of the nineteenth century. You could say that it was Adam Smith and David Ricardo that laid the foundation for the theory behind international trade. It was Adam Smith who introduced the concept of the invisible hand. He fought against the mercantile ideas and created theories on how specialization increased efficiency. Adam Smith meant that, depending on the producers different strengths and weaknesses, together they could increase production as well as real-income (commodities and services that one has at one’s disposal are seen as real-income).

In Adam Smith book The Wealth of Nation (1776) he compares a country’s situation with a family’s decision to either buy or produce the product themselves. To get an understanding of Adam Smith’s theory one can make the following assumption: Assume that the U.S and UK produce wheat and textile. If the UK is better at producing textiles compared with the U.S, whilst the U.S is better at producing wheat, then these two countries should trade with each other. This assumption means that the UK has absolute advantage when producing textile and should therefore only produce and export textile whilst importing wheat from the U.S. The U.S should do the same but the other way around. If these countries trade, wealth will then increase for both of them. Adam Smith’s theories brought about many thoughts, for example, what would happen if a country did not possess any absolute advantages for their products. Would this country have no trade?

David Ricardo had the answers for these questions, with his theory of opportunity-cost that goes hand-in-hand with the theory of comparative advantage. Comparative advantage means that a country should export products that they have the lowest alternative cost for and import products which they have the highest alternative cost for.

What this means, is that, trade occurs between two countries who tend to have international differences, in production technique and productivity. A country benefits from production-specialization if their collected real-income or consumption-possibilities are greater than with self-maintenance.

2. Heckscher–Ohlin theorem

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."

The critical assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same. The relative abundance in capital will cause the capital-abundant country to produce the capital-intensive good cheaper than the labor-abundant country and vice versa.

Initially, when the countries are not trading:

the price of the capital-intensive good in the capital-abundant country will be bid down relative to the price of the good in the other country,

the price of the labor-intensive good in the labor-abundant country will be bid down relative to the price of the good in the other country.

Once trade is allowed, profit-seeking firms will move their products to the markets that have (temporary) higher price. As a result:

the capital-abundant country will export the capital-intensive good,

the labor-abundant country will export the labor-intensive good.

The Leontief paradox, presented by Wassily Leontief in 1951,[1] found that the U.S. (the most capital-abundant country in the world by any criterion) exported labor-intensive commodities and imported capital-intensive commodities, in apparent contradiction with the Heckscher–Ohlin theorem. However, if labor is separated into two distinct factors, skilled labor and unskilled labor, the Heckscher–Ohlin theorem is more accurate. The U.S. tends to export skilled-labor-intensive goods, and tends to import unskilled-labor-intensive goods.

5. The International Division of Labor

the highest form of the social and territorial division of labor; the specialization of countries in the production of particular types of products, which they use for exchange. The need for the international division of labor and its extent are determined by the level of development of a society’s productive forces. The character of the international division of labor, like that of other forms of economic relations between countries, is decisively influenced by the relations of production prevailing in those countries. The international division of labor is of central importance for the expansion of trade between countries and constitutes the objective basis for the development of the world market.

In the early stages of the development of human society only certain elements of the international division of labor existed— elements related to the different natural conditions in different countries. Advanced forms of the international division of labor appeared in the age of industrial capitalism. The rise of large-scale mechanized industry led to greater differentiation in production and to the development of specialization and cooperation that transcended national boundaries. The international division of labor was promoted by the increased demand of industrial countries for massive quantities of agricultural products and raw materials, which were supplied to them by the economically less developed states. As Marx and Engels observed, large-scale industry “produced world history for the first time, insofar as it made all civilized nations and every individual member of them dependent for the satisfaction of their wants on the whole world, thus destroying the former natural exclusiveness of separate nations” (K. Marx and F. Engels, Soch., 2nd ed., vol. 3, p. 60).

The capitalist international division of labor promotes the growth of the productive forces of society and the more complete utilization of the material resources of various countries on the basis of scientific and technological advances. At the same time, it is characterized by profoundly antagonistic contradictions, which are the result of the exploitative quality of capitalism. The capitalist division of labor develops spontaneously. The law of value functions as the regulating factor in its development. Different conditions of production are compared in an intense competitive struggle on the world market between the capitalists of different countries. In this struggle the level of technology, which has a decisive impact on production costs, is the most important factor. Natural conditions also have some importance in determining whether certain products are competitive on the world market. When bourgeois governments take measures to artificially promote exports or pursue policies aimed at protecting the domestic market from the influx of more competitive goods and creating relatively favorable conditions for the growth of domestic production, they are playing a very important role in making commodities more competitive on the world market. The capitalist international division of labor develops through competitive struggle and is inherently unstable.

The development of the international division of labor in the late 19th century was partly the result of the destruction of small-scale handicraft production in many of the economically less developed countries of Asia, Africa, and Latin America, where it was not protected by the local governments and could not withstand the competition of cheaper industrial goods from Western Europe. Consequently, the less developed countries became suppliers of agricultural goods and raw materials. In the epoch of imperialism the export of capital has a decisive influence on the international division of labor. Capital is exported from the advanced capitalist countries, increasing the specialization of the economically underdeveloped countries in the production of food and raw materials. The international monopolies, which divide the world capitalist market among themselves, also affect the international division of labor. Under capitalism the international division of labor is shaped by noneconomic as well as by economic factors. The rise of the capitalist colonial system was accompanied by the destruction of the traditional economic structures of the colonies, which were forced to produce primarily those commodities needed by the monopolies.

There are a number of reasons for the distorted nature of the international division of labor under capitalism. On the one hand, a narrow group of industrially developed imperialist powers arises, and in them a complex variety of interrelated branches of industry develop. In the less important imperialist countries, which become more specialized within the international division of labor, there is a narrower range of branches of industry than in the major imperialist countries. On the other hand, a number of countries are singled out and turned into agricultural and raw materials appendages of the industrially developed imperialist powers. The economies of many developing countries are particularly distorted because they specialize in only one or two agricultural goods or raw materials. The one-sided specialization of certain countries acts as a brake on their economic growth, puts them at a disadvantage on the world capitalist market, and makes it easier for the imperialist powers to plunder them by means of unequal trade relations. In objective terms the capitalist international division of labor is a mechanism to keep the back-ward countries in a dependent relationship with the industrially advanced states.

The international division of labor is an instrument for the imperialist exploitation of the peoples of the colonial, semicolonial, and dependent countries. The monopolies take for themselves all the advantages of the international division of labor. By tying different countries together economically, the development of the international division of labor under capitalism leads to the internationalization of production and is a major element in the formation of the world capitalist economy.

One aspect of the general crisis of capitalism is the crisis of the capitalist system of the international division of labor. The countries that chose to build socialism broke away from this system, and a new kind of international division of labor—the international socialist division of labor—took shape. The collapse of the colonial system has introduced new elements into the international division of labor. The newly sovereign states are concentrating on building up their national economies, on developing more varied economic structures, and on industrialization. The role of the newly independent countries in the international division of labor has changed. The demand on the world market for raw materials and agricultural products, in which these countries specialized, has declined with the advance of the scientific and technological revolution. In the early 1970’s the developing countries, where two-thirds of the population of the capitalist world lives, accounted for only about a tenth of capitalist industrial production, even though they produced almost 50 percent of the capitalist world’s petroleum and more than 30 percent of its metal ores. More than 80 percent of the exports of the developing countries are raw materials and agricultural goods. In view of the new trends on the world market, the monopolies in the imperialist powers are trying to participate in the establishment of new processing industries and of modern and even ultra-modern industries in the developing countries and are investing their capital in these industries. In an effort to oppose the policies of the imperialist powers, which are aimed at preserving imperialist domination over the newly independent countries, the former colonies have chosen to expand their economic ties with the socialist states and are also developing mutual economic cooperation. A number of groups of developing countries have become economically integrated and have taken measures toward industrial specialization and cooperation, further developing the division of labor among them.

The international division of labor among advanced capitalist countries has intensified as a result of the rise in the volume of production and in the variety of goods produced. The division of labor between advanced and colonial countries usually involves different branches of industry, whereas the division of labor among industrially developed countries usually entails specialization within particular branches of industry. The latter has been promoted by the increased flow of capital from one country to another, by the formation of giant international trusts that encourage specialization and cooperation among their subsidiaries in different countries, and by the increasingly common practice of firms making agreements on industrial specialization and cooperation. The international division of labor is also increasing within the framework of economically integrated groups of capitalist countries, such as the Common Market.

In addition to the two types of international division of labor —socialist and capitalist—there is a world division of labor that includes the economies of countries that belong to both world economic systems. It is very important to the world division of labor that, owing to the scientific and technological revolution, industrial specialization transcending the individual state as well as each of the two opposing world economic systems has become economically feasible. The world division of labor is also influenced by geographic factors, especially the uneven distribution of natural resources, climatic differences, and other regional differences that affect agriculture.

As stated in the Comprehensive Program for the Further Extension and Promotion of Cooperation and Development of Socialist Economic Integration Among the Members of the Council for Mutual Economic Assistance (COMECON), the international socialist division of labor has been designed with the worldwide division of labor in mind. The COMECON countries will continue to develop economic and scientific and technological ties with other countries, regardless of their social and state systems. The expansion of economic relations between the socialist and developing countries has led to an intensified division of labor between them. In a number of developing countries industrial plants have been built with assistance from the socialist states, in anticipation of sales of goods to the USSR and other countries.

The international division of labor between the socialist and capitalist countries has developed further as a result of the expansion of trade between them on the basis of long-term contracts. In the late 1960’s and early 1970’s the USSR signed contracts with a number of Western European countries for the delivery of natural gas and with Japan for the development of forest resources in the Far East. Such cooperation is mutually advantageous and gives rise to a division of labor between countries for a relatively long period. Agreements on industrial specialization and cooperation between economic organizations in the socialist countries and capitalist firms are also becoming more common. The expansion of economic ties between the socialist and capitalist countries, based on the developing world-wide division of labor, is laying the foundation for continued peaceful coexistence.

6. Open economy

An open economy is an economy in which there are economic activities between the domestic community and outside (people, and even businesses, can trade in goods and services with other people and businesses in the international community, and funds can flow as investments across the border). Trade can take the form of managerial exchange, of technology transfers, and of all kinds of goods and services. (However, certain exceptions exist that cannot be exchanged - the railway services of a country, for example, cannot be traded with another country to avail this service, a country has to produce its own.) This contrasts with a closed economy in which international trade and finance cannot take place.

The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade.

There are a number of economic advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose. Additionally, consumers have an opportunity to invest their savings outside of the country.

If a country has an open economy, that country's spending in any given year need not equal its output of goods and services. A country can spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigners.[1] As of 2014 no totally closed economy exists.

On the other hand, a managed or closed economy is characterized by protective tariffs, state-run or nationalized industries, extensive government regulations and price controls, and similar policies indicative of a government-controlled economy. In a managed economy the government typically intervenes to influence the production of goods and services. In an open economy, market forces are allowed to determine production levels.

A completely open economy exists only in theory. For example, no country in the world allows unlimited free access to its markets. Most nations have fiscal and monetary policies that attempt to improve their economies. Many economies that are open in some respects may still have government owned, monopolistic industries. A country is considered to have an open economy, however, if its policies allow market forces to determine such matters as production and pricing.

The transition from a managed economy to an open economy can be a difficult one. Following the collapse of the Soviet Union, efforts to establish free trade and an open economy in Russia resulted in widespread hardship among the nation's middle class and a failed bank system. In Southeast Asia a fullscale financial, economic, and social crisis erupted in 1998, revealing how difficult it was to maintain a small open economy in countries such as Thailand, Indonesia, Malaysia, the Philippines, and Singapore. In South Korea, the nation's president asked its citizens to accept widespread unemployment and bankruptcies in order to move the country toward an open economy by selling off government-owned industries. Germany's transition to an open economy resulted in high levels of unemployment throughout the nation.

Social, political, and economic instability can be avoided in countries moving toward open economies, but domestic conditions must be favorable. For example, states with powerful bureaucracies can establish favorable domestic economic conditions if they have the proper ideology, accept diversity, and achieve legitimacy in the eyes of their citizens. For open economies to succeed in small countries that formerly had managed economies, favorable domestic conditions include a working education system, legal system, judicial system, and low inflation. Such conditions provide the stability necessary for an open economy to flourish.

Economists recognize an open economy as being more efficient than a managed economy. In the 18th century, economist Adam Smith (1723 1790) wrote Inquiry into the Nature and Causes of the Wealth of Nations to explain the benefits of an open economy and free trade. He wrote that interventions in international trade, such as tariffs and duties, serve only to reduce the overall wealth of all nations. Similarly, interventions in the domestic economy are also regarded as inefficient. Smith developed the concept of "the invisible hand," which in effect stated that when individual enterprises work to maximize their own profits and well-being, then the economy as a whole also operates more efficiently. He argued that the economy does not require government intervention, because the operations of domestic producers are guided, as if by an invisible hand, to benefit the economy as a whole.

9. the structure of the world economy

Indeed, many use the results of recent empirical work on global income inequality to suggest that changes associated with economic “globalization” are creating a world order in which a country’s role in the structure of the of the world economy no longer matters for economic development. Robert Wade (2004) paraphrases this contention as “…country mobility up the income/wealth hierarchy is [no longer] constrained by the structure” (567). An extremely popular and influential version of this perspective argues that there globalization “flattens out” the world and leads to economic dynamism everywhere, and particularly in the poorest regions (Friedman 2005). In short, globalization leads to rapid economic development in the periphery, resulting in worldwide convergence in per capita output and incomes during the late twentieth and early twenty-first centuries.

With respect to empirical expectations regarding the association between position in the IDL and economic growth, the “enhanced welfare” view presents a simple null hypothesis: if the structure of the international division of labor is simply “differentiated” rather than hierarchically organized, we would expect that cross-national variation in structural location should not be a significant predictor of economic growth. On the other hand, the world-systems perspective offers two distinct hypotheses corresponding to different phases in the cycles of world-economic expansion and contraction. The first is a linear hypothesis—the core grows faster than the semiperiphery and the periphery, and the semiperiphery grows faster than the periphery. In sum, there are three competing claims made the relationship between the IDL and development. The first contrasts the “enhanced welfare” view with the “hierarchy view,” where the former argues that all roles in the IDL are conducive to growth and the latter argues that only “core-like” positions are.

10. Developed countries

A developed country, industrialized country, or "more economically developed country" (MEDC), is a sovereign state that has a highly developed economy and advanced technological infrastructure relative to other less industrialized nations. Most commonly, the criteria for evaluating the degree of economic development are gross domestic product (GDP), the per capita income, level of industrialization, amount of widespread infrastructure and general standard of living. Which criteria are to be used and which countries can be classified as being developed are subjects of debate.

Developed countries have post-industrial economies, meaning the service sector provides more wealth than the industrial sector. They are contrasted with developing countries, which are in the process of industrialization, or undeveloped countries, which are pre-industrial and almost entirely agrarian. According to the International Monetary Fund, advanced economies comprise 65.8% of global nominal GDP and 52.1% of global GDP (PPP) in 2010. In 2013, the ten largest advanced economies by nominal GDP were the United States, Japan, Germany, France, the United Kingdom, Italy, Canada, Australia, Spain and South Korea. By PPP GDP, they were the United States, Japan, Germany, France, the United Kingdom, Italy, South Korea, Canada, Spain, Australia.^[3]

11. Developing countries

A developing country, also called a less-developed country, is a nation with a lower living standard, underdeveloped industrial base, and low Human Development Index (HDI) relative to other countries.[1] On the other hand, since the late 1990s developing countries tended to demonstrate higher growth rates than the developed ones.[2]

Countries with more advanced economies than other developing nations but that have not yet demonstrated signs of a developed country, are often categorized under the term newly industrialized countries.[5][6][7][8]

Kofi Annan, former Secretary General of the United Nations, defined a developed country as "one that allows all its citizens to enjoy a free and healthy life in a safe environment."[9] But according to the United Nations Statistics Division,

There is no established convention for the designation of "developed" and "developing" countries or areas in the United Nations system.[3]

The designations "developed" and "developing" are intended for statistical convenience.

On the other hand, according to the classification from International Monetary Fund (IMF) before April 2004, all countries of Central and Eastern Europe as well as the former Soviet Union (USSR) countries in Central Asia (Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan) and Mongolia, were not included under either developed or developing regions, but rather were referred to as "countries in transition"; however they are now widely as "developing countries".

The IMF uses a flexible classification system that considers "(1) per capita income level, (2) export diversification—so oil exporters that have high per capita GDP would not make the advanced classification because around 70% of its exports are oil, and (3) degree of integration into the global financial system."[11]

The World Bank classifies countries into four income groups. These are set each year on July 1. Economies were divided according to 2011 GNI per capita using the following ranges of income:[12]

• Low income countries had GNI per capita of US$1,026 or less.

• Lower middle income countries had GNI per capita between US$1,026 and US$4,036.

• Upper middle income countries had GNI per capita between US$4,036 and US$12,476.

• High income countries had GNI above US$12,476.

12. Geographical structure of international trade

For a world trade geographic distribution prevalence of the countries with the developed market economy, industrially developed countries is characteristic. The developed countries trade most of all with one another. Trade of developing countries is focused basically on the markets of industrially developed countries. Their I share in world trade makes about 25 % of world trade turnover. Significance in world trade of the countries-exporters of petroleum the last years reduces - I sja; all becomes more appreciable a role of the so-called new industrial countries, especially Asian. In modern conditions active sharing of the country in world trade is connected with significant advantages, i.e. Allows: 1) to use I resources available in the country more effectively;

V 2) to join world achievements of science and technology; In more deadlines to carry out structural reorganisation of the economy; More full and more diversly to satisfy requirements of the population. World trade in various groups of the countries is naturally connected with an originality of national economies of groups of the countries. The first group are rich countries of the world on which the large part of world production and incomes is necessary. Other countries of the world have received the name developing, or slaborazvityh, the countries. The small volume of trade between underdeveloped countries says that the huge part of their export consists of raw materials and the materials used in production of industrially developed countries. Periodically between the "rich" and "poor" countries there are political disagreements concerning revenue distribution from trade. For correction of a situation within the limits of this system special measures should be carried out: the countries should receive any indemnification for those difficulties which they should face. Being debtors of principal views of raw materials, the countries are especially vulnerable for the macroeconomic policy of industrially developed countries defining a world level of interest rates and the prices for primary goods. As manufacturers of manufactured goods speak these countries about the vulnerability for protectionism. govli And all it is aggravated with terrifying poverty. nom development of the countries, the regions, all world community: Foreign trade became the powerful factor of economic growth;

There was an appreciable increase of dependence of the countries from the international commodity exchange. International trade serves as the means allowing the countries - to participants of process to develop the specialisation, to raise productivity of available resources and thus to increase volume of the goods made by them and services, together with a standard of well-being of their population. In second half of current century the international exchange acquires grandiose scales. Nowadays 4/5 total volumes of the international economic relations are necessary on world trade. Modern international trade develops high rates. Similar stable growth of international trade was a consequence of display of following factors: Developments of the international division of labour and production internationalisation; The scientific and technological revolution, promoting fixed capital updating, creation of new branches of economy; 3} the vigorous activity of transnational corporations in the world market; Regulations (liberalisation) of international trade by means of actions of the World Trade Organization (WTO); Liberalisations of international trade, transition of many countries to a mode including cancellation of quantitative restrictions of import and essential decrease of the customs duties; formation of free economic zones; 6} developments of processes of trade and economic integration - removal of regional barriers, formation of the general markets, zones free tor - repadami between these prices. At an overflowing of the goods from the country with more low prices in the country with higher the prices in one of them will raise, and in other will go down, and the balance price will be established. A condition for this purpose is the uncontrolled liberty of international trade; Contract price, i.e. The price established during negotiations between two partners from the different countries; Market quotations, i.e. The prices develop during gamble on commodity exchanges where set of sellers interact with set of buyers; Forced sale price: here one seller and set of buyers who compete with one another; The price of the auctions, when one buyer and many sellers competing among themselves; The world prices - the prices of big exporters, to-. torye are assumed as a basis by the others uchast - 2L nikami the world markets. Have informal character. On occasion for the world price the prices of large importers or the quotation of the largest exchanges and auctions starting; The help prices - the prices which have actually developed for today published in a press or ¦ in special directories; The "sliding" price - is established almost in direct dependence on a supply and demand parity. In process of saturation of the market it decreases. Such method of fixing of the price is applied more often in relation to essential commodities; Exclusively-market price, develops in uslovijahdominirujushchego positions of one or several subjects of pricing. The prices are established considerably above an average level.

13. Commodity structure of world market

A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat,coffee, cocoa and sugar. Hard commodities are mined, such as gold, rubber and oil.^[1] Investors access about 50 major commodity markets worldwide with purely financial transactions increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities. Futures are secured by physical assets.^[2] Commodity markets can include physical trading and derivatives trading usingspot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.^[3]

A financial derivative is a financial instrument whose value is derived from a commodity termed an underlier.^[2] Derivatives are either exchange-tradedor over-the-counter (OTC). An increasing number of derivatives are traded via clearing houses some with Central Counterparty Clearing, which provide clearing and settlement services on a futures exchange, as well as off-exchange in the OTC market.^[4]

Derivatives such as futures contracts, Swaps (1970s-), Exchange-traded Commodities (ETC) (2003-), forward contracts have become the primary trading instruments in commodity markets. Futures are traded on regulated commodities exchanges. Over-the-counter (OTC) contracts are "privately negotiated bilateral contracts entered into between the contracting parties directly".^[5] [6]

Exchange-traded funds (ETFs) began to feature commodities in 2003. Gold ETFs are based on "electronic gold" that does not entail the ownership of physical bullion, with its added costs of insurance and storage in repositories such as the London bullion market. According to the World Gold Council, ETFs allow investors to be exposed to the gold market without the risk of price volatility associated with gold as a physical commodity.

Commodity price index

In 1934 the US Bureau of Labor Statistics began the computation of a daily Commodity price index that became available to the public in 1940. By 1952 the Bureau of Labor Statistics issued a Spot Market Price Index that measured the price movements of "22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. As such, it serves as one early indication of impending changes in business activity.

Commodity index fund

A commodity index fund is a fund whose assets are invested in financial instruments based on or linked to a commodity index. In just about every case the index is in fact a Commodity Futures Index. The first such index was the Commodity Research Bureau (CRB) Index, which began in 1958. Its construction made it unuseful as an investment index. The first practically investable commodity futures index was the Goldman Sachs Commodity Index, created in 1991,^[18] and known as the "GSCI". The next was the Dow Jones AIG Commodity Index. It differed from the GSCI primarily in the weights allocated to each commodity. The DJ AIG had mechanisms to periodically limit the weight of any one commodity and to remove commodities whose weights became too small. After AIG's financial problems in 2008 the Index rights were sold to UBS and it is now known as the DJUBS index. Other commodity indices include the Reuters / CRB index (which is the old CRB Index as re-structured in 2005) and the Rogers Index.

1. World prices

13. World prices

World price - the monetary value of the international value of goods sold on the world market. The world price is used to determine the price of international contracts, which is the majority of commercial transactions in the world.

Main characteristics of world prices.

World prices are influenced by the ratio of global demand and global supply for a particular commodity.

They are mounted in a freely convertible currency in which, as a rule, carried out calculations. In this case, the currency prices are not always the same as the currency of payment.

The formation of the world market price is influenced by the world's leading manufacturers and suppliers (sellers) with a significant share of total world volume of these products and is constantly reproducing (preserve) their leading position in these commodity markets.

These prices are a large number of large, regular, constantly occurring transactions involving separate, unrelated export and import operations (otherwise the implementation of counter or barter partners in trade agreements can go on significant deviations in prices).

With regard to markets fuel and commodity prices, we are talking about in the world, where the focus of their production or consumption, and / or trade (this is the price of so-called basic or representative (representative) markets).

On the level of world prices affect the currency of payment, forms and methods of calculation, the nature and terms of delivery, and many other factors.

Arrangements for setting the world price [edit | edit wiki text]

In one way or another trade in goods was certain traditions to a method for determining the world market price.

Commodity world prices are formed on the leading commodity exchanges.

Machinery and equipment for world prices form the largest manufacturers of a particular type of machinery and equipment from Europe, the United States, Japan and other developed countries.

For information on world prices exporters, and importers are using reference prices (official prices of suppliers), auction, exchange, trading price, offers and actual transactions. Information about them is contained in the trade magazines, yearbooks, directories, and other periodicals, in particular in the monthly UNCTAD "Monthly Commodity Price Bulletin", a monthly magazine of the IMF "International Financial Statistics", the publication VNIKI - "Bulletin of Foreign Commercial Information"