Commerce, SS 1, Week 1
Topic: Foreign Trade (I)
Contents:
- Meaning of Foreign Trade
- Meaning of Internal Trade
- Types of Foreign Trade
- Similarities between internal trade and foreign trade
- Differences between internal and foreign trade
Meaning of Foreign Trade
Foreign Trade is also called International trade. It is defined as the exchange of goods and services between two or more countries. Foreign trade involves different currencies of different countries and is regulated by laws, rules and regulations of the concerned countries. Thus, International trade is more complex.
The theory of international trade is based on the principle of comparative cost propounded by David Richards. The theory states that a country should specialized in the production of goods and services which it has advantage over another country. This he pointed will bring about the production of goods at cheaper cost.
Internal Trade
Internal trade is also known as domestic trade. It can be defined as the exchange of gods and services between one country.It happens within people of a particular country.
Types of Foreign Trade
1. Bilateral Trade: This is the trade agreement in which two countries exchange goods and services. It occurs when each country tries to balance its payment and receipts separately and individually with every other country.
2. Multilateral Trade: Multilateral trade is a type of international trade in which a country trades with many other countries. It is a type of trade in which many countries exchange goods and services. E.g Russia trades with Nigeria, USA and Britain
Similarities and differences between Foreign and Internal trade
Similarities
- They are similar in that they both involve a degree of specialization.
- They both involve the use of money as a medium of exchange.
- Both trade involves the activities of middlemen
- They both arise due to inequitable distribution of natural endowment and production resources.
- Both trades involve the buying and selling of goods and services.
Differences between internal and foreign trade
The differences are:
- Foreign trade requires knowledge of new languages and interpretation while it is not needed in domestic trade.
- Difference in transport cost due to distance between buyers and sellers
- International trade involves the exchange of goods and services across national frontiers while domestic trade involves the exchange of goods within the borders of a country.
- There are differences in legal systems and culture under international trade but the legal system are the same in domestic trade.
- There is possibility of restrictions in international trade, restrictions can come in form of tariffs, quotas, embargo etc when goods are exchanged between two or more countries but cannot happen in internal trade.
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