A free trade area is characterized by

A free trade area is characterized by

• A. All barriers to trade among member countries are removed.
• B. A common external tariff.
• C. Free movement of capital only.
• D. A shared currency.

Answer: (A)

Free trade areas are defined by removing trade barriers among member countries, making trade in goods and services between members essentially tariff-free. Each country still handles its own trade policy with non-members, so external barriers can differ from one country to another. That combination—no internal barriers but independent external policies—best fits the concept. The other options point to different arrangements: a common external tariff signals a customs union, not just a free trade area. Free movement of capital alone isn’t the defining feature of an FTA, and a shared currency indicates monetary integration rather than a focus on trade barriers.

Free trade areas are defined by removing trade barriers among member countries, making trade in goods and services between members essentially tariff-free. Each country still handles its own trade policy with non-members, so external barriers can differ from one country to another. That combination—no internal barriers but independent external policies—best fits the concept.

The other options point to different arrangements: a common external tariff signals a customs union, not just a free trade area. Free movement of capital alone isn’t the defining feature of an FTA, and a shared currency indicates monetary integration rather than a focus on trade barriers.