International Trade and Finance

International Trade and Finance
After the emergence of world trade organization, the volume of international trade has increased, and countries across the world actively participate in exporting domestic products to other countries. Participating in such trades allow countries to produce specialized products to export and import products from other countries to satisfy their citizens’ needs. In many regards, the United States and Japan are some of the largest competitors in international trade, because both countries produce many of the same products. Toshiba and Dell are fierce competitors in the personal computer market, and thus, in the world trade market.
Comparative Advantage
In international trade, the role of the comparative advantage is imperative and can be described as the capability of a country, or a company within a country, to manufacture a particular good or service at a lesser cost than that of another country or company.
Exchange Rate Risk
The exchange rate is defined as the value of one country’s currency in comparison to another country’s currency. The exchange rate affects organizations that export and/or import. When the value of currency increases, the price of a traded commodity decreases. The opposite occurs when the value of currency decreases. The chart below clearly shows this cycle.

Price of commodity
Exchange rate  
                                                                                                  Demand for Domestic Currency

The demand for domestic currency will decrease in the international market when a country faces disturbance internally. This internal disturbance will decrease the domestic production, and in turn, decrease the investment and demand for the currency in the international currency exchange market. This same principle is applied when inflation is high in a trading country, as the currency is worth less.
International Trade’s Impact on GDP
In terms of macroeconomics,...