Skip to content

IAI Actuarial Core Principles · Business Economics · Importance of international trade

An Indian insurer argues that opening the domestic market to foreign reinsurers will benefit the economy. Which argument is most consistent with the gains from trade?

Foreign reinsurers add competition, capacity and wider risk diversification, which can lower prices and improve availability of cover. Gains from trade apply to services as well as goods and do not require absolute advantage or higher profits for domestic insurers.

  1. AGreater competition and access to larger risk pools can lower prices and widen capacity, benefiting buyers of coverCorrect
  2. BTrade gains arise only in physical goods, so services are excluded
  3. CForeign entry always raises domestic insurers' profits
  4. DImports of services reduce national output one-for-one
  5. Gains occur only if India has an absolute advantage in reinsurance

Explanation

Gains from trade extend to services. Foreign reinsurers add competition and capacity, and international diversification of risk can lower costs. Domestic insurers' profits are not guaranteed to rise, imports do not reduce output one-for-one, and absolute advantage is not required.

Did you get it right without looking?

One question tells you little. A timed set on Importance of international trade shows your real accuracy, how long you take and where you lose marks.

Practise Importance of international tradeFree diagnostic mock

More Importance of international trade questions