International Trade — Cheatsheets

Balance of Payments structure

Account	Includes

|---|---|

Current account	Goods trade, services trade, income, transfers (remittances)
Capital/Financial account	FDI, FII/FPI, external borrowing, reserve changes

Rule: current account + capital account must balance (deficit in one financed by surplus/inflow in the other, or reserve drawdown).

Concept	Definition	Implication

|---|---|---|

Absolute advantage	More efficient in raw output terms	Doesn't fully explain why trade benefits both parties
Comparative advantage	Relatively lower opportunity cost	Explains why trade is mutually beneficial even between unequal producers

Tool	Mechanism	Generates government revenue?

|---|---|---|

Tariff	Tax on imports	Yes
Quota	Direct quantity restriction	No
Subsidy	Support for domestic producers	N/A (cost, not revenue)

Property	FDI	FII/FPI

|---|---|---|

Nature	Direct ownership/management interest	Portfolio investment (stocks, bonds)
Liquidity	Low — long-term, hard to reverse	High — can exit rapidly
Volatility contribution	Lower	Higher
Brings beyond capital	Technology, management expertise, market access	Primarily financial

(needs verification — recheck against current source: sector-specific FDI caps and approval routes revised periodically.)

Principle	Meaning

|---|---|

Most-favored-nation (MFN)	Trade terms given to one member generally extended to all members equally
Dispute settlement mechanism	Binding process for resolving trade-rule violations between members

Currency movement	Export effect	Import effect

|---|---|---|

Depreciation (weaker)	Cheaper for foreign buyers — more competitive	More expensive domestically
Appreciation (stronger)	More expensive for foreign buyers — less competitive	Cheaper domestically

J-curve: depreciation can initially worsen trade balance before improving it (volumes adjust slower than prices).