International trade and exchange rate by Engku Siti Nadia dan Tang Zhi Ling

International trade and exchange rate 
by Engku Siti Nadia dan Tang Zhi Ling

Trading globally gives consumers and countries the opportunity to be exposed to goods and services that are not available in their own countries. Almost every kind of product can be found on the international market such as food, clothes, spare parts, oil, jewellery, wine, stocks, currencies and water. There are also service that been traded such as in the tourism, banking, consulting and transportation.  The product that is sold to the global market is an export, and the product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.  World Trade Organization (WTO) is the organization that been responsible in controlling and manage the international trade.  They also involved in introduce the free trade area among the member country based on the nation or union.

Exchange rate is the price of one currency in term of another currency. An exchange rate thus has two components, the domestic currency and a foreign currency, which is also directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency. An exchange rate that does not have the domestic currency as one of the two currency components is known as a cross currency, or cross rate.

Cross exchange rate between any two currencies can be derived from the rate of these two currencies in term of a third currency. For example:

1.00 USD= 4.09441 MYR, 1.00 GBP = 5.98441 MYR. 1 GBP =1.4616 USD

The pound to USD exchange rate constitutes a cross currency rate, since neither currency is the domestic currency.