Theory question 108
International Trade(a) Distinguish between domestic trade and external trade.
(b) Distinguish between terms of trade and balance of trade.
(c) Outline four causes of balance of payments deficit in a country.
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(a) Domestic (home) trade is buying and selling within a country, using one currency; external (foreign) trade is buying and selling between countries, involving different currencies and customs formalities.
(b) Terms of trade is the rate at which a country's exports exchange for its imports (index of export prices ÷ index of import prices × 100). Balance of trade is the difference between the value of visible exports and visible imports.
(c) Any four: excessive imports; low export earnings/dependence on few primary exports; fall in world prices of exports; heavy debt servicing; capital flight/repatriation of profits; overvalued currency; inflation making exports uncompetitive; high spending on foreign services.
Terms of trade is about prices; balance of trade is about values.