International Trade and Forex

International trade is the exchange of capital, goods, and services across international borders or territories. If you are looking for a job in international trade then you must check these interview questions.

Q.1 What is the primary goal of international trade?
In general, International trade and the accompanying financial transactions are conducted for the purpose of providing a nation with commodities it lacks in exchange for those that it produces in abundance. Also, such transactions, functioning with other economic policies, aim to improve a nation's standard of living.
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Q.2 Who are the market participants in the foreign exchange market?

The market participants comprising the FX market is categorized into five groups including

  • international banks,
  • non-bank dealers,
  • bank customers ,
  • FX brokers, 
  • central banks.
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Q.3 Mention the types of international trade.

The three types of international trade are

  • export trade
  • import trade
  • entrepot trade
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Q.4 How is trade classified?

Trade is classified into two types, namely-

  • Internal or home trade.
  • External or international trade.
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Q.5 What are some of the benefits of international trade?

1.Longer product lifespan

2.Decreased competition

3.Increased revenues

4.Better risk management

5.Easier cash-flow management

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Q.6 What do you understand by Theory Of International Trade?
International trade theories are different theories to explain international trade, such that trade is the concept of exchanging goods and services between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries.
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Q.7 Mention the elements of international trade.

The five elements of international trade are

  • balance of payments,
  • correcting a deficit
  • invisible trade
  • visible trade
  • trade gap
  • exchange rates.
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Q.8 Why is international trade considered so important?
Due to international trade the trading partners gets the goods cheaper than they get otherwise. Since every country produce those goods in the production of which it has to occur less comparative cost.
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Q.9 What do you mean by trade barriers?
The trade barriers are imposed by the government by placing rules and regulations, tariffs, import quotas and embargos.
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Q.10 Define the characteristics of international trade?
Some of the characteristics of international trade are -
1. Territorial specialization
2. International competition
3. Separation of sellers from buyers
4. Long chain of middlemen
5. Mutually acceptable currency
6. International rules and regulations
7. Government control
8. Several documents
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Q.11 What type of risks are there in international trade?
1.Credit Risk 2.Foreign Exchange Risk 3.Intellectual Property Risk 4.Shipping Risk 5.Ethics Risk
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Q.12 What are the various factors that determine the size of gain of International Trade?
The various factors that determine the size of gain of International Trade are -
1. Nature of Terms of Trade
2. Difference in Cost Ratios
3. Productive Efficiency of the Country
4. Relative Elasticity of Demand
5. Factor Endowments and Technological Conditions
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Q.13 What are the types of trade barriers?
There are four types of trade barriers which include import quotas, tariffs, non-tariffs, and voluntary export restraints.
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Q.14 State the distinct features of International Transactions?
Some of the features are -
1. Immobility of Factors
2. Heterogeneous Markets
3. Different National Groups
4. Different Political Units
5. Different National Policies and Government Intervention
6. Different Currencies
7. Specific Problems
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Q.15 What are the benefits of international trade?
The countries that allow international trade generally tend to grow faster, improve productivity, innovate and offer higher income and better opportunities to their people. Integrating with the world economy via trade and global value chains help in driving economic growth and reduce poverty both locally as well as globally.
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Q.16 What are the drawbacks of Free Trade ?
Some of the drawbacks of Free Trade -
1. Unrealistic Policy
2. Non-Cooperation of Countries
3. Economic Dependence
4. Political Slavery
5. Unbalanced Development
6. Dumping
7. Harmful Products
8. International Monopolies
9. Reduction in Welfare of Certain Groups
10. Harmful to Less Developed Countries
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Q.17 What are the different types of trade policies?
The main types of trade policies are: Preferential trade agreement Free trade agreement Framework agreement Comprehensive economic cooperation agreement Comprehensive economic partnership agreement
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Q.18 What are the types of risks?
Risks are generally of three types: non-business risk, business risk, and financial risk.
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Q.19 Define trade policy.
Trade policy is set the regulations and agreements that control the imports and exports to foreign countries.
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Q.20 What do you mean by a quota system?
A quota system is meant to impose restrictions on a particular number of goods imported into a country. This system allows governments to control the quantity of imports so as to help protect domestic industries.
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Q.21 What are the objectives of trade policy?
The objectives of trade policy focus on reduced protection, increased market access for exports, achieving a more outward- oriented trade regime and greater global integration, aimed at increasing economic efficiency, and export-led growth.
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Q.22 Mention some features of international trade.
1.Immobility of Factors 2.Different National Groups 3.Heterogeneous Markets 4.Different Political Units
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Q.23 What is the basis of international trade?
The basis of international trade is the diversity of economic resources in various countries. All the countries are endowed by nature with the same production facilities. Moreover, differences in climatic conditions and geological deposits also affect the supply of labor and capital.
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Q.24 Explain the concept of free trade.
Goods and services can be purchased and sold across international borders with little or no government tariffs, subsidies, quotas or prohibitions to inhibit their exchange under the free trade policy. This concept is the opposite of trade protectionism or economic isolationism.
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Q.25 Why are trade policies important?
Trade policies are used to determine the size of markets for the output of firms and strongly influence both foreign and domestic investment. Moreover, the influence of trade policies on the investment climate is observing significant growth.
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Q.26 What does the term Forex mean?
Well, the term 'Forex' refers to Foreign Exchange. In simple terms, Forex trading is the trading in currencies from various countries against each other like the US Dollar against the Euro.
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Q.27 Who runs the Forex market?
The forex market is run by a global network of banks that is spread across four main forex trading centres in separate time zones: London, Sydney, New York and Tokyo.
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Q.28 What is the spot market?
The spot market is where financial instruments like currencies, commodities, and securities, are traded for delivery.
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Q.29 What is a forward market?
In forward market, forward rate is a contracted price for a transaction that has to be completed at an agreed upon date in the future.
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Q.30 What is the main difference between spot and future market?
The major difference between spot and futures prices is that spot prices are for immediate buying and selling, whereas futures contracts delay payment and delivery to predetermined future dates.
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Q.31 What do you mean by forward market hedging?
Forward market hedging is a means to protect exposure in the forward currency, interest rate as well as financial asset markets. In the financial instrument markets, hedging can take the form of investing in hard-currency securities.
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Q.32 What are some types of hedging?
Some types of hedging are: 1.Money Market Operations for currencies 2.Currency future contracts 3.Forward exchange contract for currencies 4.Money Market Operations for interest 5.Forward Exchange Contract for interest
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Q.33 What is the use of hedging strategies?
The hedging strategies are generally used by investors for decreasing their exposure to risk in the event that an asset in their portfolio is subject to a sudden price decline.
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Q.34 What do the credit rating agencies do?
Rating agencies help in providing trust and confidence in financial markets by rating borrowers on their creditworthiness of outstanding debt obligations.
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Q.35 What is free cash flow?
Free cash flow is equal to the cash from operations minus capital expenditures. Moreover, in financial modelling, unlevered free cash flow is used.
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Q.36 Can you define hedging?
Well, hedging is defined as an instrument to alleviate risks. Hedging corresponds to the essential purpose of insurance. However, what marks the difference between the two is that hedging is not concerned with augmenting profits but alleviating risks.
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Q.37 What is credit risk?
Credit risk is defined as the potential that a bank borrower or counterparty ought to fail in order to meet its obligations in accordance with the terms that are agreed.
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Q.38 What is import duty?
Import duty is nothing but a tax collected on imports and some exports by the custom authorities of a country. It’s the value of good that usually dictates the import duty.
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Q.39 Define export duty.
Export duty refers to the charges that are imposed on the goods produced within the country.
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Q.40 What do you mean by basic custom duty?
Basic custom duty is the duty that is imposed on the value of the goods at a particular rate. Moreover, this duty is fixed at a specified rate of ad-valorem basis. This had been imposed from 1962 and gets amended from time to time.
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Q.41 What is an export license?
An export license is a type of document issued by the licensing agency. After getting this license, an exporter is allowed to transport his product in a foreign market.
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Q.42 Name the license needed for export.
One needs to apply for an Importer Exporter Code in order to import or export anything to and from India to some other countrie.
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Q.43 What is an IEC?
Technically, an IEC is a 10-digit number that is granted by the Directorate General of Foreign Trade to any Indian entity willing to do international trade.
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Q.44 What is a credit letter?
A letter of credit is a letter from a bank that guarantees that the buyer's payment to a seller will be received on time and for the apt amount.
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Q.45 Who has to pay for the letter of credit?
Generally, the charges of the letter of credit are paid both by the applicant as well as the beneficiary of the LC.
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Q.46 What do you mean by bank guarantee?
A bank guarantee is quite similar to a letter of credit for the fact that they both instil confidence in the transaction as well as participating parties.
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Q.47 What are the types of LCs?
1.Irrevocable LC 2.Stand-by LC 3.Revocable LC 4.Unconfirmed LC 5.Confirmed LC
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Q.48 Which are the top trading nations?
The top trading countries in the world are China, United States, Germany, Japan and so on.
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Q.49 Who is the largest exporter of goods?
Since 2009, China has been the biggest exporter of goods in the world.
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Q.50 What does WTO stand for?
WTO stands for World Trade Organization. This is an intergovernmental organization that regulates as well as facilitates international trade within nations.
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Q.51 Which is the best commodity for trading?
Precious metals like gold, silver followed by crude oils, natural gas etc are among the best trading commodities in the world.
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Q.52 What is the meaning of export pricing?
Export pricing is the method of fixing the prices of goods and services that are intended to be exported and sold in the overseas markets.
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Q.53 How do we determine the export costs?
1.Landed cost 2.Foreign tariffs and taxes 3.Figuring the shipment's CIF value 4.Calculating the tariff 5.Determining the taxes
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Q.54 What do you understand by FOB shipping?
FOB stands for Free on Board that is a shipment term useful for indicating whether the seller or the buyer is liable for goods that are damaged or destroyed while shipping.
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Q.55 How do we calculate the CIF value?
In order to find CIF value, we need to add the freight and insurance costs wherein 20% of the FOB value is taken as freight.
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