1. Environment of Global Finance

There are clear benefits to being open to international trade: trade allows people to produce what they produce best and to consume the great variety of goods and services produced around the world. The key macroeconomic variables that describe an interaction in world markets are exports, imports, the trade balance, and exchange rates. Economies buy and sell goods and services in world product markets, and buy and sell capital assets in world financial markets.

When nations export more than they import, they are said to have a favourable balance of trade. When they import more than they export, an unfavourable balance of trade exists. Nations try to maintain a favourable balance of trade, which assures them of the means to buy necessary imports. Some nations, such as Great Britain in the nineteenth century, based their entire economy on the concept of importing raw materials, processing them into manufactured goods, and then exporting the finished goods.

The main difference between domestic trade and international trade is the use of foreign currencies to pay for the goods and services crossing international borders.

Whenever a country imports or exports goods and services, there is a resulting flow of funds: money returns to the exporting nation, and money flows out of the importing nation. Trade and investment is a two-way street, and with a minimum of trade barriers, international trade and investment usually makes everyone better off.

Free trade agreements often cause disputes between countries, especially when one country thinks the other is engaged in restrictive practices. Occasionally, trade wars erupt, and sanctions or embargoes are imposed on countries, and may not be lifted for long periods. On the other hand European countries closely related economically and enjoying good relations have entered into monetary union and have a single currency.

2. International trade: Export and import.

There are clear benefits to being open to international trade: trade allows people to produce what they produce best and to consume the great variety of goods and services produced around the world. The key macroeconomics variables that describe an interaction in world markets are exports, imports, the trade balance, and exchange rates.

The main difference between domestic and international trade is the use of foreign currencies to pay for the goods and services crossing international borders.

When nations export (sell goods and services to other countries) more than they import (buy goods and services from other countries), they are said to have a favorable balance of trade. When they import more than they export, a unfavorable balanace of trade exists. Nations try to maintain a favorable balance of trade, which assures them of the means to buy necessary imports. Some nations, such as Great Britain in the nineteenth century, based their entire economy on the concept of importing raw materials, processing them into manufactured goods, and then exporting the finished goods.