Question

We have discussed a whole bunch of reasons for trade, factors that influence it and have not mentioned MONEY once!! Do you think Money has a role to play in determining trade flows? Given that countries have different currencies, how do you think this will affect trade flows? How do you compare the worth of a countries currency compared to another? Should we have introduced money to our trade models, would it have made things simpler or more difficult? How do you think International relationships affect trade flows, economy wide growth and country development?

Answer 1

Do you think Money has a role to play in determining trade flows?

• Money plays critical role in promoting and expanding international trade. International trade influenced by the value of one country currency with respect to another. Rise in value of currency will increase import but export would be adversely affected.

Given that countries have different currencies, how do you think this will affect trade flows? How do you compare the worth of a countries currency compared to another?

• Of course, different currencies will affect the flow of trade. Appreciation of currency will render export of country less competitive. Thus, outward flow of trade would be harmed by rise in value of domestic currency. Further, but It would encourage import from trading partner.
• Demand and supply forces are used to decide exchange rate or worth of countries currency compared to another.

Should we have introduced money to our trade models, would it have made things simpler or more difficult?

• It will make trade models relatively complicated and cumbersome. Relative values of currencies and integrations with model would demand hard efforts.

How do you think International relationships affect trade flows, economy wide growth and country development?

• In this globalised world, trade flow depends on international relationship. Various trade agreements through international relations enhance flow of trade across the member countries.
• NAFTA, WTO, EU etc help to promote international trade through international relations.