Intenational Trade Policy Essay Example | Topics and Well Written Essays - 2250 words

Intenational Trade Policy - Essay Example Trade is the driving force for the economic development of theses countries. Countries connected by common currencies, policies and institutions could converge their incomes to the richer countries by improving the trade between the countries. Faster economic growth is largely depended on trade openness. Many countries adopted the trade liberalization policy and joined in the world trade for achieving the economic growth all most all the countries have achieved their goals of through liberalized trade policy. World bank studies show that during 1946 and 1986 strong and sustained liberalization led to the rapid growth of exports, which further led to economic growth (Jagdish N. Bhagwati, 1978, Annatomy and Consequences of Exchage control Regimes) 1. 1994 study reveals that poorest countries also grew and develop between 1960 and 1986 due to openness of the trade, which led to higher productivity (Alberto F. Ades and Edward L. Glaeser, 1999, evidence on Growth, Increasing Returns, and Extent of the Market) 2 When we study the history of economic development we witness that trade is a driving force for economic growth in developed and under developing countries. Since World War II the expansion of trade has played a dynamic role in global economic growth. Till 1994 before the World Trade Organization came into existence multilateral trade was limited to industrial countries. From 1994 the multilateral trade has expanded, to many countries of developed and underdeveloped including the countries of agricultural base due to liberalization. As a result of multinational liberalization all countries are benefited in their economic growth by unveiling their unexploited potentials. Since early 1970s world economy is in the midst of strongest period of sustained global growth duly maintaining the inflation at low levels, same trend is continued into 2007. We witness an unexpected and robust growth in India and China including other developing countries. Strong performance is also witnessed in low-income countries, such as sub-Saharan Africa (Rodrigo de Rato, Managing Director, IMF, Sustaining Global Growth, March 30, 2007)1 The main cause of this prodigious performance is attributed to solid growth in productivity, which led to growth in profits and real wages and also absorbing the sharp increase in prices to maintain the inflation at low levels. This global economic growth is made possible not merely on solid growth in productivity but rapid growth in international trade especially the developed and underdeveloped countries joining the global market. Entry of India, China and Eastern Bloc of Europe in the multilateral trade has made a substantial contribution to global economic growth. Besides other factors such as introduction of new technologies in manufacturing and service activities, increasing international mobility of capital, large-scale movements of underemployed labor out of agriculture into manufacturing and service in many developing counties and migration flow of poor counties towards the advanced economies, global integration of trade and financial market has produced tremendous benefits and trade is the driving force for this global economic growth (Rodrigo de Rato, Managing Director, IMF, Sustaining Global Growth, March 30, 2007)1 If we examine the development of economic growth of individual member countries

Forward Contracts Essay Example | Topics and Well Written Essays - 500 words

Forward Contracts - Essay Example Although these simple arrangements can easily mitigate foreign exchange rate risks, there are several advantages and disadvantages of using them to hedge foreign exchange risks (Feng, 2007). The first advantage of using forward contracts to hedge foreign exchange risks is that future rates can be fixed in advance. This therefore eliminates the downside risk exposure. Secondly, forward contracts are more flexible with respect to the amount of money to be covered. Thirdly, forward contracts are relatively simple and straightforward to both comprehend and organize (Feng, 2007). On the other hand options allow the contracting party to settle forward contracts at an agreed and fixed exchange rate, but at any time between two specific dates. This means that option-date forward exchange contracts can be settled at the agreed rate if currency cash-flows occur between the two set dates (Meera, 2009). Although forward exchange contracts are simple agreements that can mitigate exchange rate risks, they have some shortcomings. In particular, it may be difficult to get a counter party who will agree to fix future exchange rates for the time period as well as the amount in question. Secondly, forward contracts do not provide an opportunity for the parties to benefit from favorable fluctuations in the exchange rates. Thirdly, forward markets only exist for major world trading currencies such as the Dollar, Euro, Pound or Yen, but they do not exist for exotic currencies (Doupnik & Perera, 2007). The main disadvantage with options is that the issuer of the option receives the fees upon the specified date and is obligated to buy the securities at the other party’s option. Additionally, options are subject to basis risks and only provide a partial hedge (Meera,