If total value of commodity exports of a country is less than the total value of commodity imports of that country, that country is said to have an ‘unfavourable’ balance of trade.

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

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

The rate at which one currency is exchanged for another currency.

(i) International trade refers to the trade or exchange of goods and services between two or more countries.
(ii) It is a trade among different countries or trade across political boundaries.

(i) Developed by Heckscher and Ohlin
(ii) Countries with a relative factor abundance can specialise and trade
(iii) Abundance of skilled labour → specialisation → export → exchange for goods are services produced by countries with abundance of unskilled labour
(iv) Exports embody the abundant factor
(v) Imports embody the scarce factor
(vi) Assumes a high degree of factor mobility

Net Barter Terms of Trade
1. This was developed by Taussig in 1927.
2. The ratio between the prices of exports and of imports is called net barter terms of trade.
3. Viner calls it commodity terms of trade.
4. \(\mathrm{T}_{\mathrm{n}}=\left(\mathrm{P}_{\mathrm{x}} / \mathrm{P}_{\mathrm{m}}\right) \times 100\)
5. Tn is Net Barter Terms of Trade
6. Px is Index number of export prices
7. Pm is Index number of import prices
8. This measures the gain from International Trade.
9. If T_n is greater than 100, it is terms of trade which means that for a rupee of export, more of imports can be received by a country.
Gross Barter Terms of Trade
1. Developed by Taussig in 1927 as an improvement over the net terms of trade.
2. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
\(\mathrm{Tg}=\left(\mathrm{Q}_{\mathrm{m}} / \mathrm{Q}_{\mathrm{x}}\right) \times 100\)
3. Q_m is Index of import quantities
4. Q_x is Index of export quantities
5. If for a given quantity of export, more quantity of import can be consumed by a country, the terms of trade are favourable.

Pure Theory of Trade
(i) This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments.
Policy Issues
(i) Policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in BoP are covered.
International Cartels and Trade Blocs
(i) Economic integration, cartels, customs unions, monetary unions, trade blocs, economic unions and multinational corporation are covered
International Financial and Trade Regulatory Institutions
(i) Financial institutions like IMF, IBRD, WTO are part of International Economics.

1. Better utilization of resources.
2. Concentration in the production of goods in which it has a comparative advantage.
3. Saving in time.
4. Perfection of skills in production.
5. Improvement in the techniques of production.
6. Increased production.
7. Higher standard of living in the trading countries

1. FDI is an important factor in global 
2. Foreign trade and FDI are closely related.
3. In developing countries like India FDI in tie natural resource sector like plantations, increases rade.
4. Foreign production by FDI is useful to substitute foreign trade.
5. FDI is also influenced by the income generated from the trade and regional integration schemes.
6. FDI accelerates the economic growth by facilitating essential imports needed for development programs like capital goods, technical know-how, raw materials, other inputs and even scarce consumer goods.
7. When the export earnings of a country are not sufficient to finance for imports, FDI may be required to fill the trade gap.
8. FDI is encouraged by foreign exchange shortage, desire to create employment and acceleration of the pace of economic development.
9. Many developing countries strongly prefer foreign investment to imports.

Cyclical Disequilibrium
Cyclical Disequilibrium occurs because of:
(i) Two countries may be passing through different phases of business cycle.
(ii) The elasticities of demand may differ between countries.
Secular Disequilibrium
(i) It occurs because of long-run and deep rooted changes in an economy as it advances from one stage of growth to another.
(ii) In the initial stages of development, domestic investment exceeded domestic savings and imports exceeded exports, as it happened in India since $1951.
Structural disequilibrium
(i) Structural changes in line economy may also cause BoP disequibrium
(ii) Structural changes include development of alternative sources of supply, development of better substitutes, exhaustion of protective resources or changes in transport routes and costs.