Protectionist measures are in the f

Protectionist measures are in the form of duties which eliminate the comparative advantage, or quotas which restrict the import of the product altogether. There are two forms of import tariffs: specific and valorem. A specific tariff is a certain amount of tax for each of the product, for a example $500 for each automobile. An ad valorem tariff is based on the value of the product, for example 5% of its value. Thus, under an ad valorem tax Rolls Royce imported to the United A States would be taxed more than Datsun. The imposition of the ad valorem tax depends upon first determining the value of the product. The US uses the free on board (FOB) method, which is the cost of the product as it leaves the exporting country. European countries have adopted the cost insurance freight (CIF) method, which adds the value of place utility to the cost of the product. A tariff increases the price of the item, raises revenue for the government, and controls consumption through market forces. A quota has a different effect on the market because it limits the number of items imported. While under tariff it is tax that creates a higher price: the supply is not limited.
In order to import and export products, there needs to be a system of international monetary exchange. While a few products like oil are always priced in dollars, most products must be paid for with the legal tender of the producing country. International trade involves the exchange of one currency for another. Most currencies are now exchanged on a floating rate basis. There are no official exchange rates. The rates fluctuate according market forces. If large amounts of a country’s currency are being exchanged, the exchange rate may vary greatly because demand. And therefore, the price of a currency is either rising or falling. Sometimes these great fluctuations in value threaten economic stability; then central banks change market forces by purchasing a foreign currency to support its price and maintain stability.