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What drives International Trade?
Dear All:

I would like to invite opinions of others to help me improve my understanding of the economics behind International Trade.

Worlds resources are unequally divided and that gives the primary impetus to International Trade. However, this trade would not take place if there is no cost advantage obtained by the transaction. In other words, the cost of the goods including transportation and tariffs should be cheaper than the cost of the goods if it were produced locally. This brings another element into the equation - currency.

If a currency was valued higher there would be a net flow of goods and services into the country like in U.S.A and E.U countries. Cash strapped countries thus get richer and the poor countries get poorer and into debts.

Am I right in my thinking? If yes, then who determines the relative buying power of various currencies? And what mechanisms are in place to stop a country in printing extra currency to ensure that there is always a net goods and service flow into the country?

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What drives International Trade? - by Capt Manoj Singh - 07-19-2012, 11:25 AM

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