1. There are two countries and two commodities (2 x 2 model).
2. Labour is the only factor of production.
3. Labour units are homogeneous.
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.

(i) Mercantilism (pre - 16th century)
(ii) Free Trade theories
(iii) Free Trade refined

(i) Absolute Advantage (Adam Smith, 1776)
(ii) Comparative Advantage (David Ricardo, 1817)

(i) Takes an us-versus - them view of trade
(ii) Other country's gain is our country's loss

1. External trade
2. Foreign trade
3. Inter-regional trade

(i) Domestic trade
(ii) Home trade
(iii) Intra-regional trade

a) Internal Trade and
b) International Trade.

1. Pure Theory of Trade
2. Policy Issues
3. International Cartels and Trade Blocs
4. International Financial and Trade Regulatory Institutions

(i) Financial Sector (Banking and Non Banking)
(ii) Insurance
(iii) Telecommunication
(iv) Hospitality and Tourism
(v) Pharmaceuticals
(vi) Software and Information Technology

FDI means an investment in a foreign country that involves some degree of control and participation in management

(i) FOREX refers to foreign currencies.
(ii) It is the mechanism through which payments are effected between two countries having different currency systems.

(i) Imports may be controlled by imposing or enhancing import duties.
(ii) Restricting imports through import quotes.
(iii) Licensing and even prohibiting altogether the import of certain non essential items but this would encourage smuggling.

(i) Exchange control means the state intervention in the forex market.
(ii) It is a popular method employed to influence the balance of payment position of a country.

There are three main types of BOP
(a) Cyclical Disequilibrium
(b) Secular Disequilibrium
(c) Structural Disequilibrium

According to Ricardo a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize inthe production and export of those goods which are relatively more advantageous.