Economics of International Trade and International Professional Marketing

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Economics of local trade is not necessarily the same as the economics of international trade. This is one reason why there exists international professional marketing. International professional marketing aims to synergize the different countries in which one firm is supplying a product or service.

Exchange Rate – The exchange rate (also known as the foreign-exchange rate, forex rate or FX rate) between two currencies specifies how much one currency is worth in terms of the other. It is the value of a foreign nation's currency in terms of the home nation's currency.

Two Kinds of Exchange Rates – International professional marketing recognizes two general types of exchange rates.

1. Floating Exchange Rate – supply and demand for the currency of each country determine the exchange rates. Any change in supply or demand will cause a relevant fluctuation in the currencies purchasing power, and then its exchange rate. For instance, all other things being equal, if the US exports more than Japan than it imports there, there will be more demand for US dollars (and they demand for purchasing goods) and less demand for Japanese yen-then, the price of the dollars, in yen, will increase, so you will get more yen for a dollar.

2. Fixed Exchange Rate – countries via mutual agreement utilize pegging to stabilize the exchange rate between their relevant treaties. Pegging may be between one currency and another currency or one currency and a group of currencies. An example of pegged currency is that of Argentina, the Argentine currency is guaranteed as to value in dollars. Implementing a fixed exchange rate however, is much more complicated and difficult than that of a floating exchange rate. Making a currency too dependent on the value of another currency poses the biggest problem. To avoid such a happening, pegging on a composite of treaties or another standard of gold is the best solution. For example, the Argentine currency can have a pegged value of 0.25 * US dollar + 4 * Mexican peso + 50 * Japanese yen + 0.2 * German mark + 0.1 * British pound.

International professional marketing recognizes that the maintenance of fixed exchange rates is very difficult and there are times when a government is forced to buy or sell currency on the open market to prevent currencies from going beyond the accepted exchange rate range. Having a big hindrance to market forces becomes the price for stability and predictability. For instance, if a currency is made artificially low by pegging, a country will eventually export too much and import too little to influence the value of the currency.

Trade Balances and Exchange Rates
International professional marketing states that less demand for a currency of a country that is at the brink of falling into a trade deficit will eventually experience a decreasing value over time whenever exchange rates are allowed to freely fluctuate. The lower exchange rate however, will make exports easier as the lower equivalent price will sure attract more foreign buyers. Import on the other hand will become less desirable.

Measuring Country Wealth
International professional marketing consultants two acceptable means of measuring country wealth, the Gross Domestic Product (GDP) and the Gross National Product (GNP). The nominal per capita GDP pertains to the value of products and services of each person in a country if such value in local currency was to be translated into another currency, which is generally the US dollar. We can say, for example, the per capita GDP of Japan is 5,000,000 yen and the current yen-dollar exchange rate is 100 yen for every dollar, the per capita GDP is then (5,000,000 / 100) = $ 50,000. It is to be noted however that the said $ 50,000 will be able to buy less in Japan because food and housing will in effect be much more expensive there than in the US.

International professional marketing then developed the purchase parity adjusted per capita GDP that reflects what the nominal per capita GDP can actually buy in the home country. This is usually based on the relative value of a weighted "composite" of goods in a country (eg, 35% of the cost of housing, 40% the cost of food, and 10% the cost of clothing, and 15% cost of other items). If it is determined that the cost of living in Japan is 40% higher than that in the United States, the purchase parity adjusted GDP will then be measured at ($ 35,000 / (140%) = $ 35714.

(The Gross Domestic Product (GDP) and Gross National Product (GNP) are almost the same figures. The GDP includes all income earned by people in a particular country regardless of citizenship, and ignores income earned by citizens who are overseas while the GNP includes all income earned by citizens of a certain country regardless of location, and ignores income earned by foreigners even if they are earned within the country.

Purchasing Power Parity
Purchase power parity is generally more efficient when it comes to measuring the value of products and services which are produced or generated in the country of purchase, at local cost. Gross domestic product on the other hand is more applicable in the determination of the local consumer's ability to purchase imported products and services. For example, the capacity of Argentineans to buy micro computer chips, which are produced mostly in the US and Japan, is better predicted by nominal income, while the capacity to purchase toothpaste made by a US firm in a factory in Argentina is better predicted by purchase parity adjusted income.

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