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Question

Difficulty: MediumTrade Restrictions, Tariffs, and Customs Control

When a government restricts the amount of foreign currency that local importers can purchase from the central bank in order to limit imports and protect national reserves, which mechanism of trade control is being utilized?

  1. Exchange controlAnswer
  2. B
    Import quota
  3. C
    Bill of Lading regulation
  4. D
    Ad valorem tariff

Answer

The correct measure is exchange control, which directly limits access to foreign currency needed for import transactions.
Exchange control is a financial trade barrier where the government, through the central bank, limits and allocates the amount of foreign exchange available to importers. By restricting foreign currency availability, the country effectively curbs foreign trade inflows to protect its balance of payments and foreign reserves.

Step-by-Step Solution

1
Analyze the core restriction described in the stem
The scenario highlights restricting access to foreign currency administered by monetary authorities.
Identifying the specific financial mechanism distinguishes currency regulations from physical or tax-based trade barriers.
2
Evaluate trade barrier classifications
Exchange control acts as a financial trade barrier by limiting the purchasing power of importers in foreign markets.
Without official foreign currency allocation, importers cannot settle international payments.

Key Concept

Exchange control as a non-tariff trade barrier
Estimated Time:1m 0s
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Topics

Trade Restrictions, Tariffs, and Customs Control

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