Terms used in International Trade
Below are definitions of some terms and concepts used in international trade:
Balance of trade– is the difference in value of a country’s exports and its imports.
Current account– is the sum of the balance of trade (value of exports minus imports), cross border interest and dividends payments, and gifts from both individuals and governments from other countries such as foreign aid. It measures trade in goods and services as well as income and current transfers.
Capital account– reflects the change in ownership of fixed assets and the acquisitions or disposal of non-financial assets.
Financial account – records inward and outward flows of investment. This account includes direct investment, portfolio investment, changes in reserves and other investments.
Balance of payments (BOP)– is an accounting record summarizing international transactions between a country and foreign territories over a period of time. The balance of payments has three major components, a current account, capital account and the financial account. The BOP can either have a surplus (which occurs when a country sells more to foreign countries than it buys from them or a deficit (when a country buys more from a foreign country than it sells to them.
Tariff– is a tax imposed by a country’s government on imported products.
Common External Tariff (CET) – is a uniform tariff implemented by member countries of a customs union, on all imported products from territories outside the union, to any member country.
Quota (non-tariff barrier) – is the maximum amount of foreign products that are permitted to enter a domestic economy over a specific period of time.
Exchange rate– is the price at which one currency can be exchanged for another.
Exchange rate regime– is the means by which exchange rates between different currencies are determined.