Eco 372 Week 5 Essay
International Trade and Finance Speech
The current state of the U.S. macro economy is made up of a plethora of highly involved processes. I am going to attempt to explain some simple terms and concepts focused on international trade and foreign exchange rates.
Foreign Exchange Rates
One needs to have a base level understanding of what defines an exchange rate. According to Investopedia, a foreign exchange rate is “The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.”(Investopedia, 2012) The process by which foreign exchange rates are determined is really not any different than any other …show more content…
Tariffs and Quotas on Imports
Countries in trade agreements will impose tariffs and/or quotas on imports to protect the domestic production. It is a balancing act to choose appropriate tariffs and quotas. A country would impose tariffs and quotas to protect the domestic business sector. For example, if the US produces a widget, imports a foreign widget that costs less, a tariff or quota would be instituted to being the cost of the foreign widget up to the cost of the domestically produced widget. If the scales go out of balance then international relations and trade are strained. The foreign trade partner will begin to institute counterbalancing tariffs and quotas of their own. The United States doesn’t simply restrict all goods coming in from China because it would cause a trade war. A trade war is a situation in which countries try to damage each others trade. They do this by imposing high tariffs or quota restrictions. The US cannot minimize imports coming in from all countries because the trade agreements between the US and…