Final answer:
International trade components include merchandise (goods), services, and capital. Merchandise trade balance focuses on goods, while the current account balance includes trade in both goods and services, and financial capital represents the money flows facilitating trade.
Step-by-step explanation:
An understanding of the terms 'merchandise', 'services', and 'capital' is fundamental to comprehending the components of international trade. Merchandise trade balance refers to the balance of trade looking only at goods, which traditionally has been a focus of attention by governments and media. However, with the rise of globalization and technological advances, there has been a notable increase in the trade of services, such as customer services, finance, law, advertising, and software, which now comprises a significant portion of total trade for many high-income economies including the U.S.
Financial capital involves the international flows of money that facilitate trade and investment. This includes foreign direct investment, portfolio investment, and other financial instruments that allow countries to trade and invest across borders. The 'current account balance' is a comprehensive measure that includes the merchandise trade balance, trade in services, international flows of income, foreign aid, and unilateral transfers, providing a holistic view of a country's economic transactions with the rest of the world.
The shift towards services in international trade is often reflected in declarations such as the 'exports of goods and services as a percentage of GDP', which considers both goods and services when calculating a nation's international sales relative to its economic size. This reflects the evolving nature of global trade where services are playing an increasingly significant role.