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International Trade: Is the Theory of Comparative Advantage Obsolete - Assignment Example

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The author of this assignment "International Trade: Is the Theory of Comparative Advantage Obsolete?" comments on the issue of international trade. It is stated that ever since mankind formed the first nomadic tribes, there has been a need for barter and trade with other tribes and villages. …
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International Trade: Is the Theory of Comparative Advantage Obsolete
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International Trade: Is the Theory of Comparative Advantage Obsolete

Download file to see previous pages... Standard of measure and one has to rely on the intensity of need for the product desired by the counterparty before a basis of trade could be established. There may be lack of storage as well because the item of trade may be perishable and therefore has to be consumed in record time or be wasted. But all these disadvantages notwithstanding, barter still has its place in villages and jungles and surprisingly can form a part of an international trade as well. It is just necessary that the terms of trade be drawn up in advance and be adhered to by both parties- seller and buyer. If there are no further legal impediments, trade via barter can take place in today’s world as well (Siddiqui, 1994). But obviously, why take the risk of losing by giving up more in value than you are receiving? One of the prime advantages of money is that it serves as a medium of exchange as well as a measure and store of value. One can at any time observe the value of one’s home currency in terms of another country’s by looking at the foreign exchange rates being quoted via the banking system. This forms the basis of exchange for the value of goods and services being traded between different countries from time to time. It seems hard to imagine that these exchange rates too, are dependent on the ratio of imports to exports that one country has with another and vice versa. This is called bilateral trade, and when it extends to more than two countries, multilateral trade. These days most countries are known to have bilateral and multilateral trading agreements with each other. We have even evolved the concept of economic and regional trading zones and agreements such as NAFTA, SAFTA and SAARC are well known. A country having a preferred status with another is likely to be given an MFN or Most Favoured Nation status in respect of a certain commodity or service. This can be because of long-standing trade relationships or favorable trading rates or both factors.  ...Download file to see next pagesRead More
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