Question

Answer the following discussion post...

We have discussed a whole bunch of reasons for trade, factors that influence it and have not mentioned MONEY once!! Do you think Money has a role to play in determining trade flows? Given that countries have different currencies, how do you think this will affect trade flows? How do you compare the worth of a countries currency compared to another? Should we have introduced money to our trade models, would it have made things simpler or more difficult? How do you think International relationships affect trade flows, economy-wide growth, and country development?

Answer 1

Yes, money plays a significant role in trade among countries. Since countries have different currencies and trade is done on the basis of the exchange rate between their currency. If the value of the currency of a country increases wrt trading country, then its imports will rise, similarly, depreciation of a country increases the exports.

International relation and practices play a crucial role and affect the trade flows. For example, the relation between India & Pakistan determines their trade relations. When tension between them increases both increases trade imposition on each other. Which also affects their development and growth as both foregone the opportunity.