According to the theory of Purchasing Power Parity, the

exchange rates between different currencies should be

those that make it possible to acquire at the same price
an identical good or service in different countries. That is,
with 350 euros, should be able to buy the same
smartphone in Spain, in China or in the United States
because the purchasing power of the currency should be
equal in every corner of the planet.

Theory of purchasing power parity

The spread between the existing exchange rate and
type that should allow the Theory of Purchasing
Power Parity be fulfilled, coincides with the rate of
appreciation or depreciation of the exchange rate.
The Purchasing Power Parity, often often used for
international comparisons of GDP.
 The import substitution involves the use of many trade
barriers to protect domestic industries against competition
from importations. The strategy is directed inward,
because the incentives for industry and commerce favor
the production for the domestic market, to the detriment
of the export market.

Import substitution and export growth as an economic strategy.

Another development strategy is driven by export-oriented or

political exportation growth. The strategy is' directed outward
because it links the national economy to the world.

Instead of pursuing growth through the protection of domestic

industries that have a comparative disadvantage, the strategy
promotes growth through exports of manufactured goods.

No controls on trade imposed or established very few, because

disincentives to export generated by barriers, import is offset
by export subsidies
 CurrentThe balance of payments is a systematic record of all
account
balance. Ineconomic transactions between residents of the country
this scale
and
are set outthe rest of the world. Its main components are the
current
transactions account, the capital account and the account of
in goods,
official
services and reserves. Each transaction is incorporated into the
current
balance of payments as a credit or a debit. A credit is a
transfers.
transaction that leads to a payment of foreigners; A debit
is a transaction that leads to a payment to foreigners

Estructura de la balanza de pagos Capital account

The account surplus is the surplus of the current account balance. It covers
balance, to overcome exports of goods and services capital transfers and
along with transfers received, imports of goods and the acquisition or
services and transfers delivered. disposal of non-
financial assets

Financial account
balance. Accounted
investments and
changes in reserves.

Cash transactions: In terms of
the currency market, spot
transactions or spot are those in
which one currency is
exchanged for another at a
specified price, with the
obligation for both parties to
deliver the respective amounts of
currency, not later two business
days (Saturdays are not
considered as such), after the
operation has taken place.
Types of transactions in the
foreign exchange market
Term transactions: Any Futures transactions: Option transactions:
transaction in the currency market those transactions are those transactions in which
that involves delivering them in
contracted direct term in the holder or buyer
more than two business days after
a standardized way in acquires the right, but not
the transaction been effected is
organized markets, but the obligation, to make a
called forward transaction term.
not previous operations purchase or sale of one
Rarely currency price spot price
not traded on organized currency against another
coincides with the future or forward,
influencing this disparity two main markets. issuer or seller.
factors: the difference in interest
rates of the respective currencies
and the upward trend or downward
own currency
 Trade agreements

A trade agreement is a pact or negotiation between two or more countries in order to

harmonize interests in trade and increase exchanges between the signatory parties

Comercial agreements are negotiated and put into currence searching to generate benefits
for economies. Countries are searching to develop comerce, have straight rules and to
handle conflicts in their comercial and economic relationship. Develop the national
production in terms of diversification, innovation and quality, which increases employee.
Clear regulation for the Exchange that estmulates the internal production chains.

Customs unions
Preferential Trade Areas
Free trade areas Common markets
The third level member
The first level is called
The second level involves the countries should eliminate all The fourth level all
preferential trade area. A
complete removal of all trade trade barriers between each barriers between the
preferential trade area is created
barriers between the two other, and also adopt the same movement of labor and
when two countries reduce their
countries, but not yet involves commercial policy towards physical capital are
trade barriers to each other, but
the integration of labor markets other countries that are not eliminated.
not eliminated.
or capital. part of the agreement.