International Trade Simulation Paper

1178 Words5 Pages
International Trade Simulation Warren Combs XECO/212 March 25, 2012 International Trade Simulation The world’s economy has shown, historically, that its ability to survive depends strongly on the relationships between all countries. The world’s economy of today has become so interdependent that the progress of every countries economy depends solely on its ties with other countries. When countries require markets for its goods and services and these markets are not available from nearby countries, international trade has been and continues to be the primary solution for preventing countries from being isolated; because international trade allows the sale of each countries surplus products and services. The U.S. has mutual relationships…show more content…
However, there are advantages and disadvantages of international trade in the simulation that cause the world’s economy to fluctuate and leave certain countries astray. One of the advantages to international trade that I found for countries was the monetary gains and having the ability to keep their own markets honest causing the local producers to improve its goods for the reason citizens have more choices available to them. The disadvantages of international trade have to deal with countries of higher power that try to take advantage of smaller countries by swindling their government into unorthodox trading during a crisis within those countries. Another disadvantage is the possibility of local producers becoming weak, causing the unemployment rate to rise because local producers are unable to compete with international…show more content…
Factors like the strength of the economy, activities of international investors, and foreign trade all have something to do with the change in supply and demand. Given the size and mobility, the flow of capital is a determining factor of how the exchange rates will comply. Once the influences mentioned above affect the interest rates, the exchange rates among the market determined currencies are also influenced because currencies are extremely vulnerable to changes in interest rates and sovereign risk factors. The key drivers of an exchange rate stem from international capital and trade flows, the interest rate differentials net of expected inflation, trading activities in other currencies, monetary policy and central banks, and financial and political stabilities. If local prices in a country increase more than prices in another country for the same product; being is that foreign exchange forward markets are linked to interest markets; then the local currency may decline in value via its foreign counterpart, presuming there is no change with the structural relationship between the two. Balance of payments are affected when the balance of payments approach suggest that the exchange rates have come from capital transactions and trade. When the internal and external pressures are in equilibrium, this usually means the exchange rate for the equilibrium has been
Open Document