International trade, money foreign market and the balance of payments

International trade, money foreign market, and the balance of payments

Introduction

Economy system of Thailand is open economy; Thailand's dependence on international trade is quite high.

This can be seen from the ratio of the value of international trade including import and export value on the value of Gross National Product increased from an average level of 38 percent In 1957 the level of 69 percent in 1996, which reflects that Thailand is dependent on the global economy rather And the foreign trade plays an important role to the Thai economy, namely the international trade are critical factors that make the Thai economy grew rapidly and in high rate during the years 1987 - 1996 and on the export of Thailand in recent years 1996 no growth. Makes foreign investors lack confidence in Thai economy. In particular, the lack of confidence in the value of the baht As a result, the baht and the attack led to the economic crisis, as we commonly know. The role and importance of international trade sector of the Thai. Are likely to be studied and understood. The essence of international trade, money foreign market, and the balance of payments.

Meaning of International Trade

International trade is activities that exchange of goods and services between countries. Things may change as the direct object or foreign currency is accepted as a medium for the exchange of goods and services as a result, movement of capital and technology between the different technologies.

The necessity to connect to trade with foreign countries because

The benefits of international trade

1.    Make the people in country have the product meet the demand category a lot more.

2.    Expansion markets greater, producing large, have the standardization of goods, the separation of labor.

3.    When more productive, the lower the price.

4.    Construct relationships and understanding between the people of the partner country.

Main and theories of international trade.

1.    The concept of Adam Smith called Absolute Advantage it is believed that the government should have the free trade policy without interference from the government to promote the separation of labor all countries produce their aptitude low-cost, then the trade exchange with each other, Adam Smith shows that the countries other can in the production of unequal.

Example

Assume that Thailand and Japan have product demand two types is rice and cloth, and assuming that production of rice and cloth labor as a factor of production only by the ability to produce of worker in Thailand and Japan, according to the table below.

Principle of comparative advantage

Even if one country is in another country as an unfavorable in the production all types, but the two countries can trade together. Each country will choose products which, when compared with other products. Country can produce with the lowest cost. Then exchange with other country the two countries will benefit from international trade by comparing the cost of production. But if the two countries compare the cost are equal, then Ricardo that the international trade will not happen because no have any country benefit from the cost comparison.

Conclusion

Japan has the capacity to produce rice compared to Thailand was 12: 10 or 1.2: 1 and gain an advantage in the production of cloth 40: 20 or 2: 1, so Japan has the advantage over cloth. Japan should use the factors of production exists only cloth production. For Thailand, were found to be unfavorable in rice production less than an unfavorable is 1.2 times when compared with the cloth production. This unfavorable is 2 times, so Thailand should choose rice.

Principles and theories of the modern international trade

                ‘’Volume of production resources in each country existing that is the cause Production Possibility Curve or PPC of each country is different and that each country has PPC different is the international trade in accordance with the theory of comparative advantage’’

          Which countries have ample resources to produce the type that country has an advantage in production, which use production factors that are type component, and then sent out to exchange traded with other countries such as

International Finance

In make international trade need money as a medium for exchange as well as domestic trade. But since all countries have their money are currency in operation, payment will be payment by the currencies major and international accepted that intermediation of exchange is currently the most accepted in the world, such as Pound, U.S. Dollar, Yen, Mark, and francs.

Foreign currency exchange rates

Means the price of the currency compared in units of currency
Such as 1 US $ = 42.50 Baht.

Exchange rates between countries in practice

1.    Buying rate is exchange rate banks use to purchase foreign currency.

2.    Selling rate is Exchange rate at the banks use sell foreign currency.

* Sell rates are usually higher than the buying rate.

     3. Official rate is Exchange rate the central bank set for purchase - sell foreign currency.

     4. Exchange market rate is Equilibrium exchange Rate set by demand and supply of foreign currency.

The world's financial system

Foreign exchange rate system is the international monetary system in which other countries have 3 systems.

1.    Flexible Exchange Rate System is Systems that agree to let the exchange rate up or down freely without the government intervening in this system.

2.    Fixed – Exchange Rate System has 2 systems

2.1           Gold standards

Exchange rate of the currency with gold is the exact value called Par Value such as

1 pound = gold Weight 0.068

1 dollar  = gold Weight 0.00287

1 pound = 2.40 dollar

2.2           Gold Exchange Standard

Are systems that other countries use in the present must be a member IMF, and determine currency to a unit value compared to gold or determine value of foreign currency equivalent to be exchanged for gold, such as Thailand exchange rate is determined by Gold $ 1 = 20 ฿ "par value" that there is official rate a fixed amount, IMF defined higher than the par value to no more than 2.25%.

3.    Exchange Control is system that the government monopoly control foreign exchange rates, the foreign exchange falls under the rules determined by the government.

In this system, income of consumers in all foreign currencies from exports must be delivered to the central bank for not to the leakage, or to avoid by receive to currency of the country.

When receipt of foreign currency to come the government will share sold to people that want to foreign currency to send products into, considering that product imports are essential to the country.

Control foreign exchange rates

1.    Limited capital to bring into the country or sending capital out.

2.    Treatment the external value of currency the country to stability.

3.    Treatment a reserve currency as gold of the country.

4.    Public believe to in the security of currency.

5.    Treatment foreign currency for send products into a crisis.

6.    Use foreign exchange to pay back the principal and interest.

International trade policy

1.    Free trade policy: International trade policy that does not support a high tariff rates and try to eliminate the other reservation that blockade to International trade,

Country holding free trade policies must be in condition.

2.    Safeguard policies: Government intervention to the international trade for protection of economy of the country which is can’t equal, for reduce the amount of imported goods and to encourage domestic production of goods using other measures.

2.1           Government use tax revenue

2.2           Limited quota imports from abroad

2.3           Foreign exchange controls

2.4           Dumping, bringing the goods to sell more for undercut goods price from abroad.

2.5           The regulations or standards

Structure of Thai export

1.    Traditional exports - rice, rubber, wood and tin

2.    New export - maize, cassava, sugar

3.    Industrial goods - agricultural products processing industries such as jewelry and silk.

Balance of Trade and Balance of Payment

Balance of Trade is recorded value of exports and imports of the country and other countries, which there is account product list only, popular thought for a period of 1 year.

Trade balance is divided into 3 cases

Balance of Payment is accounting all records revenue - expense of trade and investment that country paid or received from abroad in the period a year.

Balance of payments have 4 sub-account

1.    Current Account

-         Balance of trade

-         Balance service

2.    Capital Movement Account is movement capital between the countries have 2 types.

1.    Direct investment such as Japan comes in to invest build a factory assembles Thailand automobile.

2.    Indirect investment such as bring money to buy bank shares and rewards is dividend, interest.

3. Transfer Payment as accounting records on donations. Subvention and other funds that received or countries transferred to foreign countries

Interactional Reserve Account

Include gold, foreign exchange and Special Drawing Rights that received from the IMF for use as international reserves as account that represents the position the balance of payments, the movements of international reserves for compensate the difference between total of Foreign exchange received with Foreign currency to paid in the current account and capital in the donation account for 1 year.