International Trade

International Trade

International Trade

Trade is the voluntary exchange of goods, services, assets, or money between one person or organization and another. Because it is voluntary, both parties to the transaction must believe they will gain from the exchange, or else they would not complete it. International trade  is trade between residents of two countries. The resident may be individuals, firms, non-profit organizations, or other forms of associations.

Different nations connecting the exchange of goods and services, through   exports and imports. The guiding principle of international trade is proportional advantage, which indicates that every country, no matter their level of development, can find something that it can produce cheaper than another country. International finance, the study of payments between nations, is a related area of international economics.

According to Dr. R.R. Paul “International Trade means the exchange goods and services between different countries or trade across the political boundaries. It also known as foreign  trade.

According to business dictionary, international trade is the exchange of goods or services along international borders. This type of trade allows for a greater competition and more competitive pricing in the market. The competition results in more affordable products for the consumer. The exchange of goods also affects the economy of the world as dictated by supply and demand, making goods and services obtainable which may not otherwise be available to consumers globally.

International trade takes place because of the following reasons:

1)      International trade is the result of territorial division of labour and specialization in the countries.

2)      Human wants are varied and unlimited and no country posseses the resources to satisfy all these wants. Hence there arises a need for interdependence between countries in the form of international trade.

3)      Factor endowments vary in different countries.

4)      Labour and entrepreneurial skills vary in different countries.

5)     Factors of production are highly immobile between the countries.

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Letter of credit operation chart

Letter of credit operation chart   Explain of the the above image: Exporter ↔ Importer: Negotiation. Importer → Importer Bank: Import license, L/C Exporter: Commodity Importer Bank → Exporter Bank: …