Autarky: A closed economy that has no trade relation with the rest of the world.
Balance of trade: The difference between the value of exports and the value of imports.
Trade deficit => imports > exports
Trade surplus => exports > imports
Balance of payments: A systematic record of a countryï¿½s transactions with the rest of the world.
Balanced trade: A situation in which the value of a countryï¿½s exports and the value of its imports are equal.
Exchange Rate: An exchange rate is the rate at which one countryï¿½s currency can be traded for another countryï¿½s currency. The exchange rate is determined by demand and supply in the foreign exchange markets where traders buy and sell currencies.
Comparative advantage: The principle of comparative advantage states that as long as the relative opportunity costs of producing goods differ among nations, there are potential gains from trade.
Tariff: Tariffs (customs duties) are taxes governments place on internationally traded goods.
Quota: Quotas are quantity limits placed on imports. Both tariffs and quotas increase price and reduce quantity. Under a tariff, the government collects the tariff revenue. With a quota, the domestic price increases, and the importer, not the government, gets the revenue.
Absolute advantage: If one country can produce more of a commodity with the same amount of real resources than another country, the country is said to have absolute advantage over other country.
Capital account: The portion of a countryï¿½s balance of payments that records the volume of private foreign investment and public grants and loans that flow into and out of a country during a given period.
Capital account convertibility: Absence of restrictions on the use and availability of a currency for buying and selling international assets. Unlike the current account, the rupee is not fully convertible on the capital account yet in India.
Capital inflow: Borrowing from foreigners. Example: foreigners purchasing domestic assets or surplus in capital account.
Capital outflow: Lending abroad. Example: Indians buying foreign assets or deficit in capital account.
Convertible currency: A currency that can be freely traded for other currencies. Indian rupee is almost convertible now.
Crawling peg: Exchange rate system in which the exchange rate is allowed to move in line with the excess of domestic over foreign inflation. The objective is to keep the real exchange rate stable.
Devaluation: Increase in the exchange rate by the government.
Exchange rate: price of one national currency in terms of another.
Foreign exchange reserve: Foreign assets held by the central bank.
Hard currency: The currency of a major country, such as US dollar, German mark, or the Japanese yen, that is freely convertible into other ï¿½softï¿½ currencies.
Written by princy