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

Introduction
(i) International trade helps a country to export its surplus goods to other countries and secure a better market for it.
(ii) Similarly, international trade helps a country to import the goods which cannot be produced at all or can be produced at a higher cost.
(iii) The gains from international trade may be categorized under four heads.
I. Efficient Production
International trade enables each participatory country to specialize in the production of goods in which it has absolute or comparative advantages. International specialization offers the following gains.
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
II. Equalization of Prices between Countries
International trade may help to equalize prices in all the trading countries
1. Prices of goods are equalized between the countries (However, in reality it has not happened).
2. The difference is only with regard to the cost of transportation.
3. Prices of factors of production are also equalized (However, in reality it has not happened).
III. Equitable Distribution of Scarce Materials
International trade may help the trading countries to have equitable distribution of scarce resources.
IV. General Advantages of International Trade
1. Availability of variety of goods for consumption.
2. Generation of more employment opportunities.
3. Industrialization of backward nations.
4. Improvement in relationship among countries (However, in reality it has not happened).
5. Division of labour and specialisation.
6. Expansion in transport facilities

(i) The balance of aggregate demand and aggregate supply was first described.
(ii) The cost of goods is determined by the ratio of aggregate demand and supply for them, both domestically and from abroad;
(iii) He theory is true regarding any quantity of goods and any number of countries, as well as for the analysis of trade between different entities.
(iv) In this case, country specialization in some goods depends on the ratio of wage levels in each country;
(v) The theory based the existence of benefits from trade for all countries, taking part in it;
(vi) There become possible to develop foreign economic policy on the scientific foundation.

Determinants of Exchange Rates
Exchange rates are determined by numerous factors and they are related to the trading relationship between two countries
1. Differentials in Inflation
Inflation and exchange rates are inversely related. A country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.
2. Differentials in Interest Rates
There is a high degree of correlation between interest rates, inflation and exchange rates. Central banks can influence over both inflation and exchange rates by manipulating interest rates. Higher interest rates attract foreign capital and cause the exchange rate to rise and vice versa.
3. Current Account Deficits
A deficit in the current account implies excess of payments over receipts. The country resorts to borrowing capital from foreign sources to make up the deficit. Excess demand for foreign currency lowers a country’s exchange rate.
4. Public Debt
Large public debts are driving out foreign investors, because it leads to inflation. As a result, exchange rate will be lower
5. Terms of Trade
A country’s terms of trade also determines the exchange rate. If the price of a country’s exports rises by a greater rate than that of its imports, its terms of trade will improve. Favorable terms of trade imply greater demand for the country’s exports and thus BoP becomes favorable.
6. Political and Economic Stability
If a nation’s political climate is stable and economic performance is good, its currency value will be appreciated by attracting more foreign capital
7. Recession
Interest rates are low during the recession phase. This will decrease inflow of foreign capital. As a result, a currency will be depreciated against other currencies, thereby lowering the exchange rate.
8. Speculation
If a country’s currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future. This results in appreciation of the exchange rate. Beside the above determinants, relative dominance in the global politics and the power to announce economic sanctions over other countries also determine exchange rates

(i) Private foreign capital tends to flow to the high profit areas rather than to the priority sectors.
(ii) The technologies brought in by the foreign investor may not be appropriate to the consumption needs, size of the domestic market etc.
(iii) Foreign investment, sometimes, have unfavorable effect on the Balance of Payments of a country because when the drain of foreign exchange by way of royalty, dividend, etc. is more than the investment made by the foreign concerns.
(iv) Foreign capital sometimes interferes in the national politics.
(v) Foreign investors sometimes engage in unfair and unethical trade practices.
(vi) Often, there are several costs associated with encouraging foreign investment.
(iv) Foreign investment in some cases leads to the destruction.